May ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were recently settled, or for which courts issued procedural rulings, are outlined below. Please note, however, that this list is not exhaustive.

Cassell v. Vanderbilt University (settlement agreement submitted to the U.S. District Court for the Middle District of Tennessee on April 22, 2019):  This case involves 403(b) plan participants’ allegations that the defendants failed to negotiate lower fees for plan recordkeeping services, imprudently included actively managed investment funds in the investment lineup even though less costly alternatives were available, and included too many investment options in the plan. The plaintiffs also contend that the defendants should have protected participants from the recordkeeper using their information to sell products to them.      

The parties have agreed to settle the case, which includes the defendant paying $14,500,000 into a settlement fund, as well as “certain additional relief” for the plaintiffs. Under that additional relief, the defendants will take several steps, including the following:

• Provide to the plaintiffs’ attorneys a list of the plan’s investment options and the fees for those options after the end of the first, second, and final year of the settlement period.
• Conduct an RFP for recordkeeping services, which will include at least three service providers and which will direct proposals to provide fees on a per-participant basis.
• Consider data provided by investment consultants when considering which investment options to include in the plan’s lineup.
• Contractually prohibit future recordkeepers “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.”
• Direct the plan’s current recordkeeper to “refrain from using information about Plan participants acquired in the course of providing recordkeeping services to the Plan to market of 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.”

Sweda v. University of Pennsylvania (procedural ruling issued by the U.S. Court of Appeals for the Third Circuit on May 2, 2019):  The plaintiffs in this case (participants in the defendant plan sponsor’s 403(b) plan) also named the plan’s investment committee and the VP of HR as defendants. The trial court ruled for the defendants on all counts. However, the appeals court has remanded the case to the trial court for further proceedings regarding the following claims:

• Recordkeeping fees:  The plaintiffs allege that the defendants paid excessive administrative fees, failed to solicit bids from service providers, failed to monitor revenue sharing, and failed to leverage the plan’s large size to obtain lower fees. Specifically, the plan allegedly paid around $5 million in annual recordkeeping fees, when similar plans paid approximately $725,000 for the same services. The plaintiffs also state that percentage-based fees increased as the plan’s assets grew, without any corresponding increase in recordkeeping services performed. In this connection, the court noted that the plaintiffs provided examples of similarly-situated fiduciaries who hired an independent consultant to request recordkeeping proposals.
• Investment expenses and performance:  The defendants allegedly breached their fiduciary duties by retaining high-cost investment options with poor performance records (compared to available alternatives) and retaining multiple options in the same asset class and investment style. The plaintiffs assert that the defendants retained identically-managed but higher-cost retail class shares instead of available lower-cost institutional class shares. Further, the plaintiffs argue that the defendants’ process of selecting and managing investment options must have been flawed because expensive underperforming funds were retained.