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Another Big University 403(b) Plan Settles with Schlichter

While disputing allegations and denying liability, plan fiduciaries have announced the second largest monetary settlement to date regarding a university retirement plan.

This settlement – for $14,000,000 – involves the $4.3 billion Johns Hopkins University 403(b) Plan, a suit brought by the law firm of Schlichter, Bogard & Denton as part of the first wave of these suits.

The defendants had had some success in late 2017 in persuading a federal judge to dismiss some, though not all, of the claims made – specifically claims that “Johns Hopkins acted imprudently by offering too many investment options or higher-cost share classes in the Plan,” and to the extent that Plaintiffs alleged that maintaining “mutual funds or that revenue sharing from a mutual fund is a prohibited transaction.”

The settlement announcement notes that it comes “after extensive arm’s length negotiations1 with assistance of two independent mediators” and acknowledges that it “comes at a time when the Fourth Circuit had accepted an interlocutory appeal of the denial of Defendant’s motion to dismiss.”

And, in what seems to have become something of the norm for these cases (at least those brought by the Schlichter firm), it has both a monetary – and a non-monetary component, the latter of which involves actions committed to by the defendant-fiduciaries for a future three years.

Monetary Terms

The terms of the proposed settlement (must still be approved by the court) are:

$14,000,000 – that will be used to pay the participants’ recoveries, administrative expenses to facilitate the Settlement, and Plaintiffs’ counsel’s attorneys’ fees and costs, and Class Representatives’ Compensation if awarded by the Court.

Those additional costs include:

$4,666,667 – Plaintiffs’ counsel (not more than one-third of the Gross Settlement Amount, as well as reimbursement for costs incurred of no more than $75,000); the settlement notes that they won’t seek fees from any interest earned in the settlement account, nor for their time communicating with class members or defendant during the settlement period (more on that in a minute)

$25,000 – Newport Trust Company as the Independent Fiduciary (explained later)

$89,072 – RG/2 Claims Administration LLC as the Settlement Administrator to provide notices electronically for those class members for whom a current e-mail address is available and by first-class mail to the current or last known address of all class members for whom there is no current email address.

$20,000 – for each of the named plaintiffs.


While this is outlined in greater detail below, the essence is that the defendants agree to provide an annual update to the plaintiffs’ counsel of the investment options, investment policy statement and fees of the plan; to retain an “independent consultant” to help them (the fiduciaries) in reviewing the plan’s investments and removing inappropriate options; to document for plaintiffs’ counsel any options that are retained despite that recommendation; to conduct a recordkeeping and administrative services RFP (including an agreement not to solicit participants for any extraneous services; to provide to plaintiffs’ counsel the bids received within 30 days of the selection – and plaintiff’s counsel basically reserves the right to seek enforcement of the terms if they believe the fiduciaries haven’t lived up to the agreement.

They also agree to communicate with participants about their investment options, and to provide online access to information regarding those options (including performance and fees) and contact information for individuals that can facilitate a fund transfer (if desired).

The settlement agreement states that those non-monetary terms “are substantial and materially add to the total value of the settlement.” For those interested in an expanded version – you can find it below2.

Other Cases

Of the roughly 20 universities that have been sued over the fees and investment options in their retirement plans since 2016, this is the fifth announced settlement; the largest to date was Vanderbilt University, which in April 2019 announced a $14,500,000 cash settlement, as well as a long list of process/procedural changes that were also to be monitored over a three-year period. In March, Brown University settled for $3.5 million, as well as “other, structural relief.” In May 2018, the University of Chicago entered into a class action settlement for a $6.5 million cash payment and changes to the university’s $3 billion plan, while earlier that year Duke University announced a $10.65 million settlement.

On the other hand, St. Louis-based Washington University, New York University, the University of Pennsylvania and Northwestern University have thus far prevailed in making their cases in court.

What This Means

For the Schlichter law firm, anyway, these settlements seem to have moved beyond “mere” money, and into some fairly extensive procedural guidelines in plan administration and review. While arguably none seem to go beyond what might reasonably be expected of the ERISA fiduciaries of a multi-billion dollar plan, there’s little question that the external oversight of – and reporting to – plaintiffs’ counsel over an extended period could become tedious, at best. 


1. Note that, in response to request from plaintiffs’ counsel, the defendants “produced approximately 500 pages of documents, consisting of plan documents, custodial account agreements, recordkeeping services agreements, the summary plan description, and fee disclosures. And to ensure meaningful settlement discussions, Plaintiffs requested additional disclosures. In response, Defendant made a supplemental production of over 400 pages of documents, which consisted of fee and investment disclosures, investment reviews, and service provider agreements. In total, Defendant produced approximately 10,000 pages of documents.”

2. Non-Monetary

For a three-year Settlement Period (during which time Plaintiffs’ counsel say they will “stay involved to monitor compliance with the settlement terms and bring an enforcement action if needed”):

Defendants will, within 30 days after the end of each year of the Settlement Period, provide Plaintiffs’ counsel a list of the Plan’s investment options, fees charged by those investments, and a copy of the Investment Policy Statement (if any);

Now, if they fail to do so:

Within 90 days of the Settlement Effective Date, the Plan’s fiduciaries “shall retain an independent consultant with expertise in designing investment structures for large defined contribution plans who will thereafter assist the fiduciaries in reviewing the Plan’s existing investment structure, including the investment options offered within the “vendor windows” and those that are frozen to new participant contributions, and to develop a recommendation for the Plan’s investment structure.” This review is to include a recommendation regarding the “removal of any investment options included in the Plan that are not monitored by the Plan’s fiduciaries, a mapping strategy (if applicable) for any funds recommended to be removed from the Plan, and treatment of any assets that are frozen to new participant contributions.”

And if the fiduciaries do not follow the consultant’s recommendation:

The settlement says that they will “document the reasons for that decision and provide those reasons in writing to Plaintiffs’ counsel along with the consultant’s written report(s), if any, and other documentation reflecting the consultant’s recommendation and basis for such recommendation;

And then – with the assistance of the independent consultant (described above), the Plan’s fiduciaries (or a delegate thereof) shall:
Issue requests for proposals for recordkeeping and administrative services (that includes an agreement that the service provider will not solicit current Plan participants for the purpose of cross-selling proprietary non-Plan products and services, including, but not limited to, Individual Retirement Accounts (IRAs), non-Plan managed account services, life or disability insurance, investment products, and wealth management services, unless a request is initiated by a Plan participant) – and, after conducting the request for proposal for recordkeeping services:

The independent consultant shall provide a recommendation to the Plan’s fiduciaries regarding whether the Plan should use a single recordkeeper or more than one recordkeeper – and, to the extent the Plan’s fiduciaries decide not to follow a recommendation, the settlement says that the Plan’s fiduciaries shall “document the reasons for that decision and provide those reasons in writing to Plaintiffs’ counsel along with the consultant’s written report(s), if any, or other documentation reflecting the consultant’s recommendation and basis for such recommendation.”

Within 30 days of selecting that recordkeeper, the plan fiduciaries agree to “provide to Plaintiffs’ counsel the final bid amounts that were submitted in response to the request for proposals and shall identify the selected recordkeeper(s), which shall be accompanied by the final agreed upon contract(s)”, and that “final agreed-upon contract(s) for recordkeeping services shall contractually prohibit the Plan’s recordkeeper(s) from soliciting current Plan participants for the purpose of cross-selling proprietary non-Plan products and services…”
If the plan fiduciaries don’t follow that independent consultant’s recommendations, and “Plaintiffs’ counsel determines that the Plan’s fiduciaries failed to comply with the terms set forth in Article 10 when deviating from the consultant’s recommendation(s), Plaintiffs’ counsel may seek enforcement of those terms in accordance…”

Participant Notification

Under terms of the settlement, within 18 months of the Settlement Effective Date, Johns Hopkins shall communicate, in writing, with current Plan participants and inform them of the recordkeeping and investment structure for the Plan resulting from the process described above, including the investment options available in the approved fund lineup, including any frozen annuity options. They will be provided with a link to a webpage containing the fees and the 1-, 5-, and 10-year historical performance of the frozen accounts and the investment options that are in the Plan’s approved investment structure – and the contact information for the individual or entity that can facilitate a fund transfer for participants who seek to transfer their investments in frozen annuity accounts to another fund in the Plan.

Also during the three-year settlement period, the settlement says that, in considering Plan investment options, the Plan’s fiduciaries “shall consider, among any other factors the Plan’s fiduciaries deem reasonable and appropriate under the circumstances, including the following: (1) the cost of different share classes available for any particular mutual fund considered for inclusion in the Plan as well as other criteria applicable to different share classes; and (2) the availability of revenue sharing rebates on any share class available for any investment option considered for inclusion in the Plan.”