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U. Penn Settles 403(b) Suit for $13 Million—and Change(s)


We now know the settlement terms for one of the first university 403(b) suits—one in which plan fiduciaries prevailed at the lower court, lost on appeal, and then failed to gain a review by the Supreme Court. And, as is increasingly so with cases brought by the law firm of Schlichter Bogard & Denton, there are “strings” attached.

The suit was filed in 2016—brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources. The plaintiffs—Jennifer Sweda, Benjamin A. Wiggins, Robert L. Young, Faith Pickering, Pushkar Sohoni and Rebecca N. Toner—were represented by Schlichter, Bogard & Denton LLP and Promisloff Law PC. 

The suit[i] alleged that the University of Pennsylvania defendants breached their fiduciary duty by “locking in” plan investment options into two investment companies, that the administrative services and fees were unreasonably high due to the defendants’ failure to seek competitive bids to decrease administrative costs, and that the fiduciaries charged unnecessary fees while the portfolio underperformed. 

The Terms

The cash settlement agreed to is $13 million—but there are conditions that will carry on for some time, through a “Settlement Period” that runs from the Settlement Effective Date and continuing for a period of three years thereafter.

Under the settlement, the University of Pennsylvania defendants acknowledge that in or around Spring 2021:

  • The Plan will begin utilizing a single recordkeeper for recordkeeping and administrative services and be charged for those services on a fixed-fee (per Plan participant) basis.
  • The Plan intends to offer an updated investment menu, including investment options offered in the lowest-cost share class available to the Plan.

Additionally, in connection with the implementation of the updated investment menu in or around Spring 2021, the Plan fiduciaries will inform Plan participants of their ability to redirect their assets held in any frozen investment options to investment options available in the updated investment menu or brokerage account option.

Oh, and during that three-year settlement period, the Defendants “shall continue to provide annual training to Plan fiduciaries regarding their fiduciary duties under ERISA.”

‘After’ Words

Within thirty (30) calendar days after the end of each year of the Settlement Period, and within thirty (30) calendar days after the conclusion of the Settlement Period, The University of Pennsylvania defendants have agreed to provide Class Counsel with the following, current as of the end of the most recent calendar quarter:

  • a list of the Plan’s investment options; 
  • the fees for those investment alternatives; and 
  • a copy of the Investment Policy Statement(s) (if any) for the Plan.

Finally, to the extent an asset-based fee is used to offset a fixed-fee for recordkeeping and administrative services, any asset-based fee collected in excess of the fixed fee amount and not used to defray reasonable expenses of administering the Plan shall be rebated back to Plan participants. Excess amounts are to be allocated to participants “in a manner the Plan fiduciaries determine to be fair, equitable, and appropriate under the circumstances.”

Moreover, before the expiration of this three-year Settlement Period, Defendants or their consultant are to initiate a request for proposal (“RFP”) for recordkeeping and administrative services, notifying plaintiffs’ counsel within sixty (60) days after the conclusion of the RFP that they have fulfilled that obligation. 

The University defendants further agree that within 90 days of the Settlement Effective Date to instruct the current recordkeeper of the Plan in writing that, in “performing previously agreed-upon recordkeeping services with respect to the Plan, the recordkeeper must not use information received as a result of providing services to the Plan and/or the Plan’s participants to solicit the Plan’s 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.” 

Additionally, should the University enter into a new recordkeeping agreement (with an existing recordkeeper or a new recordkeeper during the Settlement Period), they have agreed that any resulting contract “shall include a provision restricting the recordkeeper from using information received as a result of providing services to the Plan and/or the Plan’s participants for the purpose of soliciting the Plan’s current participants for the purpose of cross-selling non-Plan products and services, unless in response to a request by a Plan participant.”

Attorneys’ Fees

According to the settlement agreement, Class Counsel (Schlichter Bogard & Denton) intends to seek to recover their attorneys’ fees not to exceed $4,333,333, and “litigation costs and expenses advanced and carried by Class Counsel for the duration of this litigation, not to exceed $410,000.”

Class Counsel also intends to seek Class Representatives’ Compensation, in an amount not to exceed $25,000 each for each of the named plaintiffs.

The agreement must still be approved by the court.

What This Means

As noted below, this case has covered a lot of ground during the past five years. It was not only one of the first 403(b) university suits filed, the relatively early decision in favor of the defendants was cited in several other cases that followed, including several that have since (also) settled.

Of the roughly 20 universities that have been sued over the fees and investment options in their retirement plans since 2016, there have now been nine 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, which settled for $16.75 million, and Johns Hopkins, which settled for $14,000,000, also alongside a number of plan design/procedural changes. The University of Pennsylvania’s new settlement, if approved, would rank immediately after that one.[ii]

It is, of course, worth acknowledging that, unlike most other[iii] plaintiffs’ counsel in these suits, the Schlichter law firm routinely not only pushes for actions that go well beyond a mere “cash” settlement, institutionalizing changes in plan design and practice, and doing so for a period that extends for three years beyond the settlement. 

[i] The case has been through some history—in September 2017 the district court ruled in favor of the University of Pennsylvania defendants, dismissing the suit, but in May 2019 on appeal the U.S. Court of Appeals for the 3rd Circuit revived the employees’ proposed class action, partially reversing (by a 2-1 vote). A subsequent motion by the University of Pennsylvania defendants for a full court (“en banc”) reconsideration of the ruling was rejected—as was the University’s petition to the United States Supreme Court for a review. The parties announced the settlement in December.

[ii] For those interested in looking back a bit further, 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 recently announced a settlement, though the terms are not yet known. On the other hand, St. Louis-based Washington UniversityNew York University and Northwestern University have thus far prevailed in making their cases in court (although the Washington University defendants have lost an appeal).

[iii] In March 2019 , Brown University settled for $3.5 million, as well as “other, structural relief”—a conclusion that, should be acknowledged was not negotiated by the Schlichter law firm.


All comments
Gregg Braccili
2 years 8 months ago
Just again shows the importance of plan sponsors monitoring their investments, fees, and administration and committee's meeting regularly to ensure fiduciary oversight with proper documentation. Thank you for sharing.