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In mass tort litigation and other complex, multi-party litigation, Qualified Settlement Funds (QSFs) are often used to collect and house settlement proceeds from settling defendants while allocations, financial planning, and lien resolution for the settling plaintiffs are worked out.
It is tempting for parties to litigation to view a QSF as a “set it and forget it” mechanism, thinking that once they establish their QSF, they don’t need to manage it in any way aside from withdrawing settlement funds when appropriate.
That view isn’t only risky, it can lead to a failure to budget appropriately for the costs of administering the settlement and the fund itself.
When the parties cannot pay these costs from the pool of money set aside for doing so, they have to petition the court to move money from the funds set aside to be paid to the plaintiffs to the funds set aside for administrative costs. This is not only concerning, but these instances could negatively affect the reputations of the people and companies tasked with administering the settlement and the fund.
The variable costs of administering a QSF complicate budgeting
Some costs associated with QSFs will be fixed. Those are easier and more straightforward to budget.
But variable costs are the ones that often challenge counsel for the parties to the settlement and settlement administrators.
Each year, the QSF’s auditors will audit the fund and bill it for its services. The tax accountants responsible for preparing and filing the QSF’s tax returns will do so annually and bill the QSF accordingly. Likewise, the trustee’s fees, as well as insurance fees, are additional ongoing costs.
As counsel for the parties and settlement administrators focus on other tasks at hand that tend to extend the time it takes to complete the settlement process, such as confirming valuations, resolving liens, and ironing out estate-related matters, they are likely to lose track of when the QSF will incur a new round of costs.
Over time, the actual costs of administering the QSF could end up being double or triple the budgeted costs if the settlement process drags on for two or three years instead of the single year that was expected.
Transparency is the key to enhancing QSF cost budgeting
In our experience, transparency and open communications among the people and organizations involved in administering a QSF, including counsel for the parties, can help keep QSF costs from unexpectedly skyrocketing.
Counsel for the parties, settlement administrators, and vendors should be communicating regularly about the money being spent, where it’s being spent, and when upcoming expenditures are likely to occur. They should be creating and regularly updating both budgets and forecasts so they all have a close-to-real-time understanding of current and future costs.
In addition, vendors need to understand—and perhaps be reminded of—the importance of setting a budget, sticking to it, and informing others when their budgets might change.
Keeping costs in check is good for everyone involved
QSFs are designed to make the settlement process less complicated, at least when it comes to the collection and disbursement of settlement proceeds.
But when the costs of administering a QSF go over budget, and the litigating parties need to petition the court to move money from the settlement fund to pay the increased expenses, nobody wins.
The settling plaintiffs’ could recover less, the judge will not be able to bring the settlement to a close and resolve the litigation as quickly as they would like, and the administrators and counsel for the parties could be seen as not managing the process appropriately.
Avoiding this unpleasant outcome is relatively easy. All that is needed are frequent and frank discussions about the past, current, and future costs of administering the QSF.
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Interested in learning more about our settlement administration services? Email us at info@verusllc.com or call us at 888.681.1129 to arrange an initial consultation.