The parties in one of the first university 403(b) excessive fee suits—by participant-plaintiffs represented by the Schlichter law firm—has come to terms on the eve of going to trial.
The suit, filed in August 2016, involved two plans sponsored by the University of Southern California (the University of Southern California Defined Contribution Retirement Plan and the University of Southern California Tax-Deferred Annuity Plan). The plans’ investments options were offered by four separate recordkeepers to the plans: TIAA-CREF, Vanguard, Fidelity and Prudential. With the exception of approximately 14 investment options, all investments were proprietary investments of these four recordkeepers.
Why the Suit
Prior to March 2016, the suit alleged that the plans offered more than 340 investment options, which included mutual funds, insurance pooled separate accounts, and insurance company fixed and variable annuity products. In March 2016, the USC plans made some changes, removing one of the recordkeepers for future contributions (Prudential), eliminating hundreds of mutual funds (cutting the menu to 34 funds), removing certain fixed and variable annuity investment options, and freezing contributions to certain other fixed and variable annuity investment options. That said, the complaint notes that the defendants “continue to include high-priced investment options in the Plans, retain three recordkeepers, and continue to allow excessive recordkeeping fees to be charged to the Plans.” At the same time the plaintiffs claimed that as part of the communications about the changes to participants, “Defendants expressly acknowledged that the Plans’ multiple recordkeeper structure and hundreds of investment options caused the Plans to pay unreasonable recordkeeping and investment fees.”
Where We’ve Been
A lot has happened since then. The USC defendants had argued that the workers had signed employment agreements that required them to first pursue arbitration—but U.S. District Judge Virginia A. Phillips held that the plans themselves needed to be party to those agreements to force that result. The Ninth Circuit subsequently affirmed that decision (July 2018), and though the USC defendants had petitioned for a hearing by the United States Supreme Court—that was declined early in 2019.
Later that same year Judge Phillips dismissed claims that the school failed to be loyal to plan participants, and that USC had violated ERISA's prohibited transactions provision by continuing to work with certain companies on retirement plan management. However, remaining claims were approved. The USC defendants unsuccessfully tried to challenge the class status (arguing that since all participants hadn’t been injured in the same way), but the court was not persuaded since the plans were centrally managed by USC—even if they invested in different funds, paid different recordkeeping fees or used the same recordkeeping services.
Where We Are
The suit had been scheduled for a bench trial this month—but Judge Phillips issued an order explaining that “the Court, having been notified that the case has tentatively settled, vacates the bench trial, and sets a Status Conference for January 25, 2023 at 9:00 a.m.”—but explained that “Counsel may request to vacate the status conference upon notice to the Court that a full settlement has been reached and a hearing is not necessary.”
And then, separately she noted that “Based on counsel’s request, the Court vacates the status conference set for January 25, 2023. Further, the Court orders counsel to file the motion for preliminary approval within 30 days.”
So, now we wait. Stay tuned.