McKinsey & Co. agreed to pay $39.5 million to settle a complaint that the company and an affiliate violated ERISA rules against self-dealing in the management of two company retirement plans.
The agreement, which requires court approval, also contains several non-monetary requirements.
McKinsey will retain an independent third party for at least three years "to review the plans' investment options and review all expense reimbursements to McKinsey, MIO, or any other affiliated person or entity," said the proposed settlement document filed Aug. 10 in U.S. District Court in New York.
MIO Partners Inc., a McKinsey affiliate, provided proprietary investments for the two company plans, the McKinsey & Co. Inc. Profit-Sharing Retirement Plan and the McKinsey & Co. Inc. Money Purchase Pension Plan. MIO is a defendant in the lawsuit.
"In addition, McKinsey will issue a request for proposal for record-keeping services for the plans before the plans' current record-keeping contract expires," the settlement document said.
"For a period of no less than three years, all expense reimbursements by the plans to McKinsey, MIO, or any other affiliated person or entity will be reviewed and approved by an independent fiduciary, who shall have final discretion to approve or reject reimbursements," the document said.
The parties announced a tentative agreement May 26 but didn't disclose terms at that time.
“Defendants dispute the allegations and deny liability for any alleged violations of ERISA,” the settlement document said.
A plan participant sued McKinsey, MIO and the plans' fiduciaries in February 2019 arguing that the plans' costs were far higher than the median costs of plans with similar amounts of assets.
The plaintiff said MIO "has failed to consider replacing" its proprietary funds "with superior alternatives," according to original complaint in the case of Bhatia vs. McKinsey & Co. et al. The defendants didn't follow "prudent processes to advance participants' interests or defray participants' costs."
As of Dec. 31, 2018, according to the latest Form 5500 statements, the McKinsey & Co. Inc. Profit-Sharing Retirement Plan had assets of $5.2 billion in assets and the McKinsey & Co. Inc. Money Purchase Pension Plan had assets of $1.1 billion.