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Schlichter Strikes Another Excessive Fee Settlement


After extensive litigation, lengthy discovery, and protracted arm’s-length negotiations with the assistance of a national mediator, the parties in an excessive fee suit have announced the terms of their settlement agreement – and once again, it's about more than lost money.

Specifically, Vanderbilt University has agreed to pay a sum of $14,500,000 into a Settlement Fund, as well as “certain additional relief.”

Fiduciaries of Vanderbilt’s $3.4 billion (as of 2014) plan were alleged to have not taken advantage of their “jumbo” plan size to negotiate better deals for their 40,000 plan participants and beneficiaries, that they opted for active management solutions when (cheaper) passive alternatives were available, that they used mutual funds – and retail mutual funds at that – rather than collective investment funds or separately managed accounts, and that they flooded their plan with a “dizzying” array of fund choices that not only stymied participant decision-making, but resulted in higher-than-reasonable fees.

The settlement was announced in late February, but the terms were only just released.

The Settlement Class includes all current and former participants and beneficiaries who participated in the plan between Aug. 10, 2010 and March 31, 2019, except – of course – “certain individual defendants identified in the Settlement Agreement.”

'Certain' Stance

As for that “certain additional relief,” as was the case in another recent Schlichter firm settlement, the terms go well beyond the initial monetary relief.  In this case, Vanderbilt agrees to: 

  • provide plaintiffs’ counsel a list of the plan’s investment options and the fees for those options, as well as a copy of the investment policy statement – within 30 calendar days after the end of the first and  second years of the settlement period, as well as within 30 days after the conclusion of the settlement period; 

  • communicate  by  email with  currently  employed Plan  participants  identifying current investment options in the plan, providing a link to a disclosure of the fees and performance of the frozen annuity accounts and the current investment options, and providing contact information for the individual or entity that can facilitate a fund transfer no later than Jan. 31, 2020 (in a form approved by the plaintiffs’ counsel);  

  • conduct a request for proposals (RFP) for recordkeeping and administrative services for the plan to at least three qualified service providers (on or before April 1, 2022) that will request that a any proposal for basic recordkeeping services express fees on a per-participant basis; 

  • after conducting the RFP, regardless of their decision to keep or replace the recordkeeper, they will “contractually  prohibit the  recordkeeper  from using  information  about Plan  participants acquired in the course of providing recordkeeping services to the Plan to market or sell products or services unrelated to the Plan to Plan participants unless a request for such products or services is initiated by a Plan participant”; 

  • provide to plaintiffs counsel (within 30 days of the RFP decision) “the best and final bid amounts that were  submitted  in response  to  the RFP and a copy of the agreed-upon  contract for recordkeeping services; 

  • when evaluating plan investment options (throughout the settlement period) to consider the cost of different share classes available for the plan’s current investment options, “among other factors”; 

  • continue its engagement with AonHewitt to provide ongoing investment monitoring services for the polan during the settlement period – or shall engage another investment consultant to “provide a comparable or greater level of information and services”; and

  • consider information provided by investment consultants in considering plan investment options.

Plaintiffs’ counsel – Schlichter Bogard & Denton LLP and Hawkins Hogan PLC – will receive no more than one-third of the settlement fund, or or $4,833,333, as well as reimbursement for costs incurred of no more than $225,000, according to the motion. That said, plaintiffs’ counsel says it will not seek “attorneys’ fees (1) from the interest earned on the Gross Settlement Amount; (2) for time associated with communicating with Class Members or Defendants during the Settlement Period; and (3) for work required to enforce the proposed Settlement, if necessary.” The class representatives – named plaintiffs Loren L. Cassell, Pamela M. Steele, John E. Rice, Penelope A. Adgent, Dawn E. Crago and Lynda Payne – will also receive an incentive amount of $25,000 to be approved by the court.

Newport Group was selected as the Independent Fiduciary at a cost of $25,000, while Analytics LLC was selected as the Settlement Administrator at an estimated cost of $85,608 to provide notices electronically for class members for whom a current email address is available. The case is Cassell et al. v. Vanderbilt University et al., case number 3:16-cv-02086, in the U.S. District Court for the Middle District of Tennessee.

While at least 20 universities have been sued over the fees and investment options in their retirement plans since 2016, this is only the third announced settlement; in May 2018 the plaintiffs and 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 this year Duke University announced a $10.65 million settlement.

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.

What This Means

Not so very long ago, these settlements involved the exchange of money (a third of which went to plaintiffs’ counsel), and little more, and most still follow that pattern. More recently, the settlements have involved structural changes to the plan at a point in time. However, the recent settlements by the Schlichter firm have gone further, not only demanding change, and change sustained over a multi-year settlement period, but also an accounting of sorts to the plaintiffs’ counsel during that period. It is an interesting development, one that seems designed to ensure that the change negotiated in the settlement “sticks.”  

It will be interesting to see if other plaintiffs’ firms adopt this model – as they have mimicked other strategies of the Schlichter firm.