Vanderbilt 403(b) Plan Suit Settlement Includes Non-Monetary Relief

Vanderbilt will conduct a request for proposals (RFP) for a new recordkeeper, among other things.

The parties in a lawsuit against Vanderbilt University and its 403(b) plan fiduciaries have filed a motion for preliminary approval of a settlement agreement.

The parties announced in February they had reached a settlement and were given until April 22 to file their motion for preliminary approval.

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According to the settlement agreement, the Vanderbilt defendants will deposit $14,500,000 in an interest-bearing account to be used to pay the recoveries to class members, as well as class counsel’s attorneys’ fees and expenses, administrative expenses of the settlement, and the class representatives’ compensation as described in the settlement.

In addition, within 30 calendar days after the end of the first and second years of the settlement period, and within 30 calendar days after the conclusion of the settlement period, the Vanderbilt defendants will provide to the class counsel a list of the plan’s investment options and the fees for those investment options, as well as a copy of the investment policy statement (IPS) for the plan. No later than January 31, 2020, Vanderbilt University will communicate by email with currently employed plan participants identifying current investment options in the plan, providing a link to a disclosure of the fees and performance of the frozen annuity accounts and the current investment options, and providing contact information for the individual or entity that can facilitate a fund transfer. 

The settlement agreement also stipulates that on or before April 1, 2022, the plan’s fiduciaries shall conduct a request for proposals (RFP) for recordkeeping and administrative services for the plan to at least three qualified service providers. The RFP shall request that any proposal for basic recordkeeping services express fees on a per-participant basis.

Whether plan fiduciaries retain the current recordkeeper or a new one, they will contractually prohibit the recordkeeper from using information about  participants acquired throughout the course of providing services to the plan, to market or sell unrelated products or services to the participants unless a request for such products or services is initiated. 

The agreement also says that throughout the settlement period, the plan’s fiduciaries, when evaluating plan investment options, will consider the cost of different share classes available for the plan’s current investment options, among other factors. Vanderbilt will continue its engagement with Aon to provide ongoing investment monitoring services for the plan, or engage another investment consultant to provide a comparable or greater level of information and services.

The lawsuit claims fiduciaries of the plans breached their fiduciary duties by locking the plan into a certain stock account (CREF) and into the services of a certain recordkeeper (TIAA); engaging in prohibited transactions by locking the plan into the CREF Stock Account and the recordkeeping services of TIAA; breaching their fiduciary duties by paying unreasonable administrative fees; engaging in prohibited transactions by paying excessive administrative fees; breaching their fiduciary duties by agreeing to unreasonable investment, management, and other fees and failing to monitor imprudent investments; engaging in prohibited transactions by paying fees to certain third parties in connection with the plan’s investment in those parties’ investment options; and failing to monitor other fiduciaries.

Chief U.S. District Judge Waverly D. Crenshaw, Jr. of the U.S. District Court for the Middle District of Tennessee dismissed loyalty and prohibited transaction claims, but allowed other claims to proceed. The plaintiffs then filed an amended complaint adding a new claim related to the defendants’ alleged failure to protect plan assets by allowing third parties to market services to participants.