Allocation of settlement payments in class-action securites litigation

[KJohnson]

Every now and again, plans I work with receive claim forms for class action securities settlements. Recoveries are often small. How do you treat thse settlement payments? Do you simply include them with earnings for the year received, or is there an oblgation to ascertain the period that the applicable security was held by the Plan and make allocations on that basis? If the latter, is there any obligation with regard to participants who have received distributions prior to receipt of the settlement payment?

[RCK]

Since these tend to be fairly small, I have taken the position that the cost of doing a technically accurate allocation exceeds the amount of the recovery. So we treat it as current earnings.

The only exception that I've had to make is when the recovery came from a state Annuity Guarantee Association, and was a recovery of lost earnings for a Confederation Life GIC. The state required that the recovery only go to residents of that state. They would have liked it to go to every state resident who had an account when Confederation Life encountered the difficulty even if they had taken a distribution. But we convinced them that we could credit it to state residents who had an account then, and still had one.