A Look At Two Recent 403(b) Lawsuits/Settlements

????????I’ve written about the large number of lawsuits filed in the past few years against 403(b) plan sponsors in my past newsletters.?They all have a similar theme, which is the claim that plan sponsors have breached their fiduciary responsibilities when it comes to overall pricing and investment selection.?I mentioned before that these lawsuits are important for nonprofit plan sponsors to follow because the outcomes are laying a precedent for future litigation.?They are also laying out a “blueprint” of sorts for plan sponsors to follow to ensure they are fulfilling their fiduciary responsibilities to their plan participants.?The recently filed lawsuit against Northwestern University and the settlement involving Rush University Medical Center illustrate my past points on this.?

Northwestern University

??????????????About a month ago Northwestern University became the latest plan sponsor to face a lawsuit for breach of fiduciary duties to participants.?The defendants named in this lawsuit included the plan’s investment committee and individuals involved in the operation of the university’s 403(b) plan.?The allegations laid out by the plaintiff mirror prior lawsuits that have been filed (and in some cases settled already).?They claim that the plan failed to ensure that recordkeeping expenses were reasonable and that the plan failed to act to replace investments that had excessive management fees.?They compared the plan’s costs to other similar plans to show that the fees were excessive, and as far as investments, they claim the plan was limited to low-performing, high-cost investment options.?One huge claim that was made was that many of the investment options were already flagged as imprudent in prior ERISA litigation and the university should have been aware of this.?As I’ve stated, these previous lawsuits have laid out a precedent that plan sponsors must be aware of and they must ensure they’re following a prudent process for managing their plan.?

Rush University Medical Center

??????????????The lawsuit against Rush University Medical Center was just filed in January of this year so this is a relatively quick settlement.?The plaintiffs had three main complaints that they filed in this lawsuit, which are similar to previous lawsuits.

1.?????The plan was paying unreasonable recordkeeping and administrative fees compared to similar plans.

2.?????The plan maintained imprudent investment options.

3.?????The imprudent investments caused the plan to pay unreasonable investment management fees.

As part of the settlement, the university agreed to pay $2.95M as well as “meaningful non-monetary relief related to the ongoing management and administration of the Plan.”?The settlement details are not fully released yet but based on previous settlements, my guess is that the Plan agreed to hire an independent advisor or consultant to benchmark their plan for fees and also help the investment committee create a prudent process for monitoring the plan’s investment options.?

??????????????The new lawsuit against Northwestern University and the recent settlement by Rush University Medical Center both follow the same pattern we’ve seen with 403(b) lawsuits over the past few years.?I can’t emphasize enough that nonprofit plan sponsors need to pay attention to these and ensure that they have their own prudent process for monitoring plan fees and investment options.?I know this can be cumbersome and time consuming for some, but that’s why part of your prudent process can be to hire an experienced retirement plan advisor or consultant to lead you through this.?

??????????????I hope this newsletter was helpful and as always, I’m happy to be resource to any plan sponsors that have questions or could use some help.?Please feel free to reach out anytime.?Thanks for reading and have a great rest of the week!

About Strategic Retirement Partners?

Strategic Retirement Partners is a nationwide independent retirement plan consulting services firm dedicated to providing guidance in decision-making and problem solving to employers and sponsors of retirement plans. With 23 offices from coast to coast, Strategic Retirement Partners currently consults on over 975 corporate and non-profit plans and over $16.8 billion in assets as of January 1, 2022.?

Securities offered through LPL Financial, Member FINRA/SIPC. For hyperlinks to FINRA and SIPC, please refer to ‘See Contact Info’ section in my Linked In profile. Investment advisory services are offered through Global Retirement Partners, an SEC Registered Investment Advisor. Global Retirement Partners and Strategic Retirement Partners (SRP) are separate entities from LPL Financial.