Another university 403(b) excessive fee suit has settled for cash “…and other meaningful non-monetary relief.”
The settlement (Santiago v. Univ. of Miami, S.D. Fla., No. 1:20-cv-21784, motion for settlement approval 11/23/21) was reached between participant-plaintiffs Augustina Santiago, Lilly Leyva, Guillermo Creamer, and Maria Aceituno “individually and as representatives of a class of participants and beneficiaries of the University of Miami Retirement Savings Plan,” with approximately $1 billion in assets. The suit had been filed in April 2020.
The Allegations
The suit’s allegations adhered to the customary “script” for such litigation:[i] that rather than “leveraging the Plan’s massive bargaining power to benefit participants and beneficiaries, the defendants caused the Plan to pay “unreasonable and excessive fees for investment and administrative services,” that they “caused Plaintiffs to pay an asset-based fee for administrative services that increased as the value of participant accounts rose, even though no additional services were being provided, and that they “selected and retained investment options for the Plan that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided Plan investors with the identical investment at a lower cost.”
Indeed, the plaintiffs say the defendants “freighted the Plan’s investment lineup with imprudent investments.” The plaintiffs also took issue with fund selection (specifically the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund (TIAA-CREF), TIAA Traditional Annuity)—and the use of multiple recordkeepers—six in this case—as well as what it termed an “overwhelming” number of choices (the suit calls it a “haphazard lineup of over 390 duplicative investments that are proprietary to the recordkeeper”), according to the plaintiffs, that hinder participant choice, and the inefficiency of a multi-recordkeeper platform that they claims “does not allow sponsors to leverage total plan assets and receive appropriate pricing based on aggregate assets.”
The Settlement
Now, before we get to the settlement itself, it’s worth taking a minute to recount (in the language of the plaintiffs/settlement agreement) that it’s “…the product of hard-fought litigation, which included substantial motion practice, discovery, the retention of knowledgeable and qualified experts who performed damage analyses, and arm’s-length negotiations directed by a seasoned and respected mediator between experienced ERISA counsel.” Moreover, it acknowledges that it should be considered “in the context of the risk that further protracted litigation might lead to no recovery, or to a smaller recovery for Plaintiffs and the proposed Settlement Class”—and that “the University mounted a vigorous defense at all stages of the litigation, and, but for the Settlement, would have continued to do so through all future stages of the litigation.”
The cash portion of the proposed settlement is a $1,850,000 cash payment—and that’s expected to cover “the independent fiduciary fees; settlement administration fees and costs; any Plaintiffs Compensation approved by the Court; and any Class Counsel fees and costs approved by the Court.”
‘Other Monetary Relief’
As for that “other meaningful non-monetary relief”…
Within three years of the Settlement Effective Date, the Plans’ fiduciaries will initiate a request for proposals (RFP) for recordkeeping and administrative services for the Plans.
The University and the Plans’ fiduciaries additionally agreed that they will not agree to any increase in the current contractual fees paid by the Plans to Fidelity and TIAA for recordkeeping services those entities provide to the Plans during the three years following the Settlement Effective Date.
The Settlement Agreement also provides that the Parties will select an Independent Fiduciary to review the Settlement and “provide, if the Independent Fiduciary concludes that it is appropriate, the authorization required by that Exemption on behalf of the Plans,” as well as providing a report memorializing its determination at least 30 days prior to the final approval hearing set by the court.
The agreement states that the plaintiffs’ attorneys[ii] “will petition the Court for an award of attorneys’ fees not to exceed one-third (33.3%) of the Gross Settlement Amount, plus reasonable expenses.” Moreover, it calls for a monetary award for the four named plaintiffs “not to exceed $7,000 for each…”
Finally, by way of validating the settlement terms, the plaintiffs note that “absent this Settlement, continued litigation would be complex and would require the investment of considerable resources by both parties and the Court. Liability is heavily contested, and both sides would face considerable risks should the litigation proceed. In contrast to the complexity, delay, risk, and expense of continued litigation, the proposed Settlement will produce certain, and substantial recovery for Settlement Class Members.”
“In sum,” they conclude, “under the Settlement, the Settlement Class Members can quickly realize a portion of their alleged damages from the Settlement Fund, and will also benefit from the University commitment to engage in an RFP for recordkeeping services to the Plans during the three years following the Settlement Effective Date, with a commitment not to agree to any increase in the contractual fees paid to the Plans’ recordkeepers (Fidelity and TIAA) during that time. Even if the amount is less than the minimum that could have been recovered through successful litigation, the settlement is fair, reasonable, and adequate.”
Will the court agree? Stay tuned.
[i] At least 20 universities have been sued over the fees and investment options in their retirement plans since 2016 and to date, settlements have been struck with the University of Pennsylvania, Brown University, Vanderbilt University, Cornell University and the University of Chicago.
On the other hand, St. Louis-based Washington University, New York University and Northwestern University have prevailed in making their cases in court—although Washington University’s victory is under appeal and that of Northwestern is slated to be considered by the U.S. Supreme Court, due to what the Schlichter law firm termed its “chilling effect” on this type litigation. Ultimately, there seems to be no end to this type of litigation—at least not as long as there are multibillion-dollar 403(b) plans to be sued.
[ii] Wenzel Fenton Cabassa PA, McKay Law LLC, and Justice for Justice LLC represent the plaintiffs here.
