Johns Hopkins University, Baltimore, has reached a preliminary settlement with participants in the university's 403(b) plan, agreeing to pay $14 million and make a series of changes in plan management and administration to address allegations of ERISA violations.
"This settlement avoids the expense and distraction of prolonged litigation," said Karen Lancaster, a university spokeswoman, in an email Wednesday. "Johns Hopkins denies any and all allegations in this case. We are confident that the university's retirement plan has been well and prudently managed, and is in compliance with ERISA and other applicable law."
One of those plan management changes requires plan executives to instruct future record keepers to refrain from soliciting plan participants "for the purpose of cross-selling proprietary non-plan products and services," said the preliminary settlement document filed Tuesday in a U.S. District Court in Baltimore.
The record keepers will be chosen via a settlement-ordered RFP within 90 days of when a federal judge approves terms of the settlement.
The cross-selling prohibition and other non-monetary provisions "are substantial and materially add to the total value of the settlement," said a memorandum filed Tuesday by the plaintiffs in support of the settlement. "These provisions ensure that current and future participants in the plan are offered a prudently administered retirement program."
The cross-selling prohibitions cover individual retirement accounts, non-plan managed accounts, life or disability insurance, investment products and wealth management services "unless a request is initiated by a plan participant," said the settlement document in the case of Kelly et al. vs. The Johns Hopkins University.
This requirement is similar to one in a settlement announced in April affecting the 403(b) plan of Vanderbilt University, Nashville. The university agreed to pay $14.5 million to settle the case of Cassell et al. vs. Vanderbilt University et al.
The Vanderbilt and Johns Hopkins agreements were negotiated by Jerome Schlichter, founding and managing partner of law firm Schlichter, Bogard & Denton.
"Our understanding is that they have already started the RFP process so that the restriction on marketing non-plan products and services will be implemented soon," Mr. Schlichter wrote in an email Wednesday, referring to the Johns Hopkins settlement.
Participants in the 403(b) plan sued in August 2016 alleging, among other things, fiduciary breaches for providing "unreasonable compensation" to multiple record keepers, failing to "prudently monitor and control" record-keeping expenses, and failing to "solicit bids" from other record keepers.
Plaintiffs also accused plan executives of keeping underperforming investment options in the plan menu and offering high-cost options instead of similar, cheaper ones.
Over the years, some allegations were dismissed by a federal court judge, and the parties began negotiating a settlement in mid-2018, according to court documents. The parties reached an agreement in April this year on a payment, but the agreement for non-monetary provisions was completed in mid-July, according to court documents.
The settlement period will run for three years starting from the date the federal judge approves the terms.
The class-action settlement requires the university to hire an independent investment consultant to work with plan executives to issue RFPs for record keeping and administrative services. "The requests for proposal shall be made to at least three qualified service providers for administrative and record-keeping services," the settlement document said.
The RFPs "shall request that any proposal provided by a service provider for basic record-keeping services to the plan include an agreement that the service provider will not solicit current plan participants for the purpose of cross-selling proprietary non-plan products and services."
The RFPs also shall require record-keeping candidates to identify their fee policy "in a manner that is not based on a percentage of plan assets but on a total fixed fee and on a per-participant basis," the document said.
The 403(b) plan currently has five record keepers. None was cited as a defendant. None was identified in the settlement document.
The independent investment consultant, upon reviewing the RFPs, "shall provide a recommendation to the plan's fiduciaries regarding whether the plan should use a single record keeper or more than one record keeper," the settlement document said.
After talking to the consultant, plan executives "may decide to keep one or more of its current record keepers or retain a new record keeper based on whatever factors, including cost, value, available services, and quality of services, that the plan's fiduciaries deem reasonable and appropriate under the circumstances," the settlement document said.
