The parties in one of the first university 403(b) plan excessive fee suits[i] filed in 2016 have come to terms.
This time the settlement (Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920, motion for preliminary settlement approval 5/29/20) involves the Emory University Retirement Plan and the Emory Healthcare, Inc. Retirement Savings and Matching Plan, plans that had more than $3 billion in assets between them (or did, as of Dec. 31, 2014, with some 45,000 participants across the two plans. The plan fiduciaries had been accused in the U.S. District Court in the Northern District of Georgia in Atlanta of allowing “unreasonable expenses to be charged to participants for administration of the Plans and retaining “high cost and poor-performing investments compared to available alternatives.”
The Settlement
The settlement, which was announced last month, but the terms only just released, calls for the Emory University defendants to pay $16,750,000 into a Settlement Fund. And for many of these suits, that might be the end of it. However, the terms of this settlement—akin to others involving the Schlichter law firm—goes beyond a mere monetary settlement.
Here the agreement includes a series of provisions that will extend, and involve monitoring by the plaintiffs’ counsel, the law firm of Schlichter Bogard & Denton LLP for the following three years. Within 30 days of the end of each of those years, the Emory University fiduciaries have agreed to provide plaintiffs’ counsel with a list of the investment alternatives and the fees for those investment alternatives, as well as a copy of the Investment Policy Statement(s) (if any) for the Plans.
Furthermore, “if the Plans’ fiduciaries have not already done so, within ninety (90) calendar days of the Settlement Effective Date, the Plans’ fiduciaries have agreed to “retain an independent consultant with expertise in designing investment structures for defined contribution plans with more than $1 billion in total plan assets,” and, thereafter, agree to “work with the consultant (whether an already-retained consultant or a newly retained consultant) to review the Plans’ existing investment structure to develop a recommendation for the Plans’ investment structure.”
Structure Review
According to the agreement, this “review and evaluation of the Plans’ investment structure and the development of a recommendation for the Plans’ investment structure shall include”:
- a recommendation regarding whether to remove any investment options included in the Plans;
- a mapping strategy (if applicable) for any funds recommended to be removed from the Plans; and
- treatment of any assets that may be frozen to new participant contributions.
Once that review has been completed, the settlement says that a recommendation for the Plans’ investment structure shall be presented to the Plans’ fiduciaries—at which point they are to “determine whether to follow that recommendation, whatever it may be.” However, if they decide not to follow that recommendation, the settlement directs that those plan fiduciaries, within 30 days, “document the reasons for that decision and provide those reasons in writing to Class Counsel along with the consultant’s written report(s), if any, or other documentation reflecting the consultant’s recommendation and basis for such recommendation.”
Participant Data
Additionally—and this item is fast becoming a staple of settlements (and suits) filed by the Schlichter firm—the Emory University defendants “agree to instruct the recordkeepers of the Plans in writing within ninety (90) calendar days of the Settlement Effective Date that, in performing previously agreed-upon recordkeeping services with respect to the Plans, they must not use information received as a result of providing services to the Plans and/or the Plans’ participants to solicit the Plans’ current participants for the purpose of cross-selling 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 in response to a request by a Plan participant.” This condition, by the way, extends to any new recordkeeping agreement with an existing or new recordkeeper during the next three years.
Recordkeeping RFP
Speaking of new recordkeepers, the settlement says that within 180 calendar days of the Settlement Effective Date, “defendants shall issue requests for proposals for recordkeeping and administrative services,” to at least four qualified service providers, “each of which should have experience providing recordkeeping and administrative services to plans of similar size and complexity.” Those RFPs are to request “that the service providers respond on the basis of different alternative recordkeeping structures, including that of a single recordkeeping structure,” and they are to “request that any proposal provided by a service provider for recordkeeping services to the Plans include (but need not be limited to) an expression of fees in a manner that is not based on a percentage of the Plans’ assets but on a total fixed fee and on a per-participant basis.”
Once again, these RFPs are to be reviewed and a recommendation made by the designated independent consultant as to whether the Plans should use a single recordkeeper or more than one recordkeeper, at which point the settlement says that the Plans’ fiduciaries may “decide to keep one or more of their current recordkeepers and/or retain a new recordkeeper based on whatever factors, including cost, value, available services, and quality of services, that the Plans’ fiduciaries deem reasonable and appropriate under the circumstances.” However, once again, if those plan fiduciaries decide not to follow that recommendation, the plan’s fiduciaries are to (within 30 calendar days of the decision) “document the reasons for that decision and provide those reasons in writing to Class Counsel along with the independent consultant’s written report(s), if any, or other documentation reflecting the consultant’s recommendation and basis for such recommendation.”
Also within 30 days of picking a recordkeeper(s), the plan fiduciaries agree to provide to the plaintiffs’ counsel “the final bid amounts that were submitted in response to the request for proposals (without identifying the recordkeepers who submitted those bids) and shall identify the selected recordkeeper(s), which shall be accompanied with the final agreed-upon contract(s) for recordkeeping services (once finalized and available).”
Recommendation Reject?
In case you’re wondering what happens if the Emory University fiduciaries don’t follow the recommendation(s) of the independent consultant, and the plaintiffs’ counsel determine that the Plans’ fiduciaries failed to comply with the terms set forth in the settlement agreement, well, “Class Counsel may seek enforcement of those terms via a mediation process,” and if that’s unsuccessful, taking it back to court.
All that notwithstanding, within 18 months of the Settlement Effective Date, the Emory defendants agree that they will communicate (in writing) to the current participants, informing them of the resulting recordkeeping and investment structure for the plans, and of the investment options available in the approved fund lineup. The participants are to be provided with a link to a webpage containing the fees and the 1-, 5- and 10-year historical performance of the investment options (including any frozen accounts) that are in the Plans’ investment structure.
Oh, and “for avoidance of doubt,” any changes to the Plans’ recordkeeping and investment structure that result are allowed to be implemented more than 18 months out—but less than 24 months from the Settlement Effective Date.
Counsel Compensation
The agreement states that Class Counsel intends to seek to recover their attorneys’ fees “not to exceed $5,583,333.33—and litigation costs and expenses “advanced and carried by Class Counsel for the duration of this litigation, not to exceed $675,000.” As for the named plaintiffs, the settlement contemplates “an amount not to exceed $25,000 each for Class Representatives Geneva Henderson, Rena Guzman, Jacqueline Goldberg, Connie Corpening, Joanne Rackstraw, Joann D. Wright, Deon M. Moore, Cynthia T. James, and Huberta W. Waller.
The settlement has to be approved by the court, of course—the settlement requests a fairness hearing, not to be scheduled before Sept. 27, 2020—with an anticipation that, failing something untoward arising, the court would approve it after that.
[i]Of the roughly 20 universities that have been sued over the fees and investment options in their retirement plans since 2016, there have been eight announced settlements; the largest to date with MIT, for $18.1 million, and prior to that 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, as with the MIT settlement (and now the Emory University plan, as well as Johns Hopkins, which settled for $14,000,000, also alongside a number of plan design/procedural changes. 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. Princeton University has recently announced, those the terms are not yet known.
On the other hand, St. Louis-based Washington University, New York University and Northwestern University have thus far prevailed in making their cases in court (though the Washington University defendants have just lost an appeal). The University of Pennsylvania, which in 2017 won at the district court level, in 2019 had that decision partially overturned by an appellate court, though the plan fiduciaries’ motion for an en banc review of that decision was rebuffed.
Oh, and they continue to be filed, the most recent against the University of Miami in early May.
