Overview of ERISA Litigation: Columbia University Settlement: A Reminder of the Risk of ERISA Litigation | Faegre Drinker Biddle & Reath LLP
On May 21, 2021, the terms of the settlement of the class action proposed in Cates v. Directors of Columbia University in New York City, Case # 1: 16-cv-06524 (SDNY) have been announced. The case, which was filed in 2016, involved allegations that the plan’s trustees breached their ERISA obligations by forcing the plan and members to pay excessive fees to service providers and by selecting and maintaining options. costly and inefficient investment.
In addition to a monetary payment of $ 13 million, the settlement agreement includes a number of non-monetary conditions, including requirements that the Columbia University Trustees:
- Provide mandatory annual fiduciary training for a period of three years beginning on the effective date of the settlement (the settlement period).
- Negotiate record keeping fees per participant or per account, and remit to participants any revenue splits received in addition to the per participant or per account fee, rather than using them to cover plan expenses.
- Inform participants of their ability to redirect assets held in frozen investment options to other investment options in an updated investment menu.
- Maintain the lowest available share class of each investment option, except for investments under the self-directed brokerage window.
- Continue to use an independent investment consultant and continue to meet with the consultant on a quarterly basis.
- Initiate a Request for Proposal (RFP) for recordkeeping services before the end of the settlement period.
- Direct the current registrar not to use information received as a result of the provision of contracted recordkeeping services to sell or market non-plan products or services (such as IRAs, life insurance or disability and wealth management services) to participants, other than in response to a request from a participant.
the Columbia This case is just one of many fiduciary breach / excessive fee litigation that has been filed against trustees / committees of the 401 (k) and 403 (b) plans.
The settlement – and the growing trend of ERISA litigation filing – serves as a reminder to trustees / committees to ensure they have implemented a prudent process to select and hold investment options and to review fees and charges. plan provider services. In these cases, the objective is not whether the Trustees ultimately made the correct decision, but whether the Trustees engaged in a prudent process and made an informed and reasoned decision based on the analysis of the relevant information. .
The main issues to be addressed in a good fiduciary process generally include, but are not limited to, the following:
- A periodic request for proposals or a review of service provider fees and services.
- A review of investment options on a periodic (usually quarterly) basis, including the performance of existing options and a review of other aspects (for example, non-mutual fund options, share class and active versus passive management).
- Confirmation that plan documents, including any committee charter or investment policy statement, are being followed.
- Review and discuss the fee structure for service providers, such as alternatives for revenue sharing and fixed fees.
- Establishment of effective and regular meetings, including a work plan and process for monitoring investments, service providers and delegates.
- Record keeping documenting the Trustee / Committee process.
Having a prudent process in place will not necessarily prevent a claim from being filed, but having evidence of the Trustee / Committee’s prudent process is often the best method to successfully defend against such claims.