Court Filing Details $13M UPenn 403(b) Lawsuit Settlement

A new court filing in the U.S. District Court for the Eastern District of Pennsylvania describes the terms of a settlement reached between the University of Pennsylvania (UPenn) and plaintiffs in a long-running and complex Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit.

The case boasts a detailed procedural history that first saw the District Court dismiss the complaint. That decision, filed in 2017, was based in part on the fact that the UPenn 403(b) plan in question offered a wide array of investment options, which the court interpreted to mean that the claims that participants were forced into high-priced and poorly performing investments could not stand up.

Defendants admit no wrongdoing or liability with respect to any of the allegations or claims in this action, but the university will pay $13 million to resolve the litigation and bar future related claims. As is par for the course, the settlement document stipulates that up to a third of this amount can be paid as plaintiffs’ attorneys fees.

The text of the settlement agreement and accompanying order include non-monetary actions to be undertaken by UPenn. For example, the settlement contains defendants’ acknowledgement that in or around spring 2021, the plan sponsor 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 agreement further emphasizes UPenn’s commitment to provide an “updated investment menu, including investment options offered in the lowest-cost share class available to the plans.”

The settlement further provides the following additional terms for a settlement period of three years from the effective settlement date: “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.” Furthermore, the defendants “shall continue to provide annual training to plan fiduciaries regarding their fiduciary duties under ERISA,” and, 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.”

Another element of the settlement requires that, before the expiration of the settlement period, defendants or their consultant shall initiate a request for proposals (RFP) for recordkeeping and administrative services. Also notable, the defendants agree to “instruct the current recordkeeper of the plan in writing within 90 calendar days of the settlement date 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.”

The full text of the settlement agreement and order are available here.