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Brown Strikes a Deal in 403(b) Suit

403 (b) Plans

“After vigorous advocacy and negotiation,” the parties in a 403(b) university excessive fee suit have come to terms.

The settlement – stuck between participant-plaintiffs Diane G. Short, Judith Daviau and Joseph Barboza and Brown University – consists of a $3.5 million cash payment and “other, structural relief.” 

Specifically, Brown agreed:

  1. to use commercially reasonable best efforts to continue to try to further reduce recordkeeping fees from the Plans’ two recordkeepers for a period three (3) years from the date of entry of the Final Approval Order, and in the event that fees increase despite Brown’s efforts, Brown agreed to notify participants and explain the occurrence; and
  2. to conduct a Request for Proposal process for the role of independent investment advisor to the Plans.

The settlement agreement says that plaintiffs’ counsel will petition the Court for an award of attorneys’ fees and costs not to exceed 30% of the Settlement Amount, as well as incentive awards for the named plaintiffs “not to exceed $5,000 per named plaintiff in recognition of the service of Plaintiffs.”

Brown University also agreed to select an Independent Fiduciary to review and authorize the settlement and to pay the costs associated with those services. 

The parties claim that the settlement “provides a substantial and immediate benefit to them in the form of a multi-million dollar cash payment, and it provides affirmative, therapeutic relief,” is “the product of hard-fought litigation, which included substantial motion practice, exchange and review of key documents, painstaking damage analyses, and arm’s-length negotiations between experienced counsel directed by a seasoned and respected mediator.” The parties note that the defendants “mounted a vigorous defense at the early stages of the litigation, and Plaintiffs expect that they would have continued to do so during discovery, trial and, potentially, through appeal.”

Case History

Last summer, Brown University managed to get most of the plaintiffs’ claims dismissed, but left for adjudication were ruled that claims that Brown acted imprudently by using more than one recordkeeper, that a prudent fiduciary in like circumstances would have solicited competitive bids plausibly alleged a breach of the duty of prudence, and that the plaintiffs stated a claim regarding excessive fees and expenses. The court had also ruled that the plaintiffs stated a claim for breach of the duty of prudence concerning Brown’s process for selecting and retaining the CREF Stock Account and the TIAA Real Estate Account, which the plaintiffs claimed “had prolonged periods of underperformance and higher costs compared to similar funds.”

At a high level, the suit alleged, as have the vast majority of these excessive fee cases, that rather than “leveraging the Plans’ substantial bargaining power to benefit participants and beneficiaries, Defendant caused the Plans to pay unreasonable and excessive fees for investment and administrative services.” Also cited were the plan fiduciaries’ decisions to select and retain “investment options for the Plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees.” 

The suit alleged that Brown contracted, since at least 2012, with two separate record keepers for one of its retirement plans – an “inefficient and costly” structure that the plaintiffs claim caused participants to pay duplicative, excessive and unreasonable fees for record keeping and administrative services. The suit further claimed that TIAA has received indirect compensation for record keeping and administrative services of $3.9 million from only three of its investment options, and that meant that for the 13,000 participants in both plans, participants were paying an average of $300 annually for record keeping services.

Other Settlements

While at least 20 universities have been sued over the fees and investment options in their retirement plans since 2016, Brown is the fourth university to strike a deal in these cases, following Vanderbilt University, Duke University and the University of Chicago.

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

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