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University of Chicago settles with 403(b) participants over alleged ERISA violations

The University of Chicago has agreed to a preliminary settlement with participants in two university 403(b) plans, paying $6.5 million to address allegations that it violated ERISA guidelines by failing to monitor two poor-performing investment options and paying excessive record-keeping and administrative fees.

The preliminary settlement in the class-action suit was filed Tuesday in U.S. District Court in Chicago before Judge Ruben Castillo, who must approve the agreement. It affects the University of Chicago Contributory Retirement Plan and the University of Chicago Retirement Income Plan for Employees. The plans had $2.3 billion and $1.05 billion in assets, respectively, as of Dec. 31, 2016, according the latest Form 5500 filings.

The settlement noted that the university "claims that it properly managed its retirement plans and had prudent processes in place to evaluate both its record-keeping fees and investment options."

In addition to paying $6.5 million, the university agreed to not increase per-participant record-keeping fees for three years following approval of the settlement. The settlement also said the university would "use commercially reasonable best efforts to continue to attempt to reduce record-keeping fees."

The notice of the settlement agreement, filed by three law firms representing plaintiffs, also reported that the university restructured its investment lineup in April by reducing the number of investment options, including dropping the CREF Stock Account from both plans.

The original complaint, filed in May 2017, said the university, as the plans' fiduciary, had failed to monitor the CREF Stock Account and the TIAA Real Estate Account. The case is Daugherty et al. vs. University of Chicago. TIAA-CREF was not a defendant.

Both sides agreed to mediation before approving a preliminary settlement. The $6.5 million includes a provision for attorneys' fees of not more than 30% of the total amount, subject to court approval. Approximately 40,000 participants will be affected by the agreement, according to the settlement document.