News, University News

University agrees to $3.5 million settlement, ending suit

Denying wrongdoing, University settles retirement plan lawsuit in light of prospective legal battle

By
Senior Staff Writer
Thursday, March 14, 2019

The University's Advancement Office facilitated meetings between faculty and prospective students, some of whom were also Brown trustee referrals, according to emails reviewed by The Herald.

The University agreed March 11 to a $3.5 million settlement in a class-action lawsuit that alleged the University breached the Employee Retirement Income Security Act and mishandled two of its 403(b) retirement plans — tax-sheltered plan options available to employees of tax-exempt organizations.

The University decided to settle Short et al. v. Brown University after “considering the prospect of years of costly litigation,” Director of News and Editorial Development Brian Clark wrote in an email to The Herald. The settlement agreement states that the “defendant denies any fault, liability or wrongdoing.” Furthermore, the University is “fully confident that our retirement plans are in compliance with all applicable laws,” including ERISA, Clark added.

The settlement agreement states that the University must make a request for proposal for the creation of an “independent investment advisor” role for the retirement plans, as well as hire an independent fiduciary “whose sole loyalty is the settlement class” to evaluate and authorize the settlement.

The motion for preliminary approval of the settlement was filed over two and a half years after participants in the retirement plans filed the initial complaint in July 2017. The four primary plaintiffs’ concerns stemmed from the management of the University’s Legacy Retirement Plan and Deferred Vesting Retirement Plan. Faculty and staff “who are regularly scheduled to work 1,000 or more hours per year” are usually eligible for these plans, the University’s website states.

The plaintiffs alleged that the University’s managers for the plans “consistently selected and retained investment options … that historically and consistently underperformed their benchmarks and charged excessive management fees,” according to the complaint. The plaintiffs also argued that the plan managers should have chosen one recordkeeper for the plans rather than the two chosen by the University, The Herald previously reported.

The settlement will be paid to current and former plan participants, and “the distribution will be made into (each participant’s) account,”  according to the agreement. The settlement also calls for the University to “use commercially reasonable best efforts to further reduce recordkeeping fees” for a period of three years, beginning from the date of the settlement’s Final Approval Order. If fees increase during this period, the University must notify the plans’ participants to inform them and provide an explanation for the increase.

“This class action is one of a number of similar actions that were filed in 2016 and 2017 against universities that sponsor plans designed to offer employees financial security during retirement,” Clark wrote.

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