Settlement in Johns Hopkins 403(b) Plan Lawsuit Includes Recordkeeper Bid

The plaintiffs in a 403(b) ERISA lawsuit targeting John Hopkins University have filed a settlement motion and other case-closing documents in federal court.

In their initial complaint and subsequent argumentation, plaintiffs alleged that fiduciaries of the Johns Hopkins University 403(b) plan violated Sections 404 and 406 of the Employee Retirement Income Security Act (ERISA). The case was one of a number filed in district courts across the country by the same counsel—Schlichter, Bogard and Denton—that brought virtually identical claims against several other big-ticket universities.

In this particular case, the plaintiffs argued Johns Hopkins had “not prudently managed its pension plan, known as a 403(b) plan, in violation of ERISA.” Plaintiffs further alleged, like their counterparts suing other universities, that Johns Hopkins had not managed the plan for the exclusive purpose of providing benefits to participants and their beneficiaries.

News that the parties have reached a settlement comes nearly two years after the U.S. District Court for the District of Maryland granted in part and denied in part the defendants’ motion to dismiss the Employee Retirement Income Security Act (ERISA) lawsuit. Technically, the motion was granted to the extent plaintiffs alleged under Counts I, III, and V that “Johns Hopkins acted imprudently by offering too many investment options or higher-cost share classes in the plan,” and for Counts II, IV, and VI, to the extent that plaintiffs alleged that maintaining “mutual funds or that revenue sharing from a mutual fund is a prohibited transaction.” The motion was denied in all other respects.

Following the Maryland Court’s order, plaintiffs asserted that two of the district court decisions upon which the Court relied erred by conflating institutional non-mutual fund vehicles with institutional mutual fund share classes, and overlooked the Supreme Court’s instruction to apply trust law when evaluating the scope of a fiduciary’s duty regarding mutual fund shares. As a result, Plaintiffs moved for partial reconsideration of the dismissal order on October 12, 2017. Plaintiffs’ motion was later denied on August 14, 2018.

From here, the parties proceeded to discovery after defendant’s motion to dismiss was decided. The parties negotiated a stipulated confidentiality and seal order and a stipulation for discovery of hard copy documents and electronically stored information. According to case documents, at the time the parties reached a settlement, the defense had completed its production of all minutes and meeting materials of the plan’s fiduciaries, fee and performance disclosures, and other materials requested by plaintiffs.

Case documents show the defendants moved to certify the court’s dismissal order for an immediate interlocutory appeal under 28 U.S.C. Section 1292(b) on November 10, 2017. The Court granted the defendants’ motion on August 15, 2018, and stayed the case pending appeal. The 4th U.S. Circuit Court of Appeals subsequently granted the defendants’ petition for interlocutory appeal. To allow settlement discussions to proceed, the briefing schedule for the appeal was extended multiple times. As a result, John Hopkins has not filed its opening brief and appendix with the 4th Circuit.

While the appeal was pending, the parties engaged in settlement discussions, case documents explain. In accordance with the 4th Circuit’s Local Rule 33, a mediation conference was scheduled with a 4th Circuit mediator. On April 11, 2019, the parties participated in an in-person all-day mediation session, which resulted in an agreement on the monetary portion of the settlement. Over more than two months, the parties negotiated non-monetary terms involving actions to be taken by defendants and changes to the plan. Only on July 17, 2019, did the parties finally reach an agreement on all terms.

According to the settlement motion filed by the plaintiffs, the settlement will cause John Hopkins defendants to deposit $14 million as the gross settlement amount in an interest-bearing settlement account. The settlement fund will be used “to pay the participants’ recoveries, administrative expenses to facilitate the settlement, and plaintiffs’ counsel’s attorneys’ fees and costs, and class representatives’ compensation if awarded by the court.”

In addition to the monetary component of the settlement, the defendants agreed to substantial non-monetary terms in accordance with Article 10 of the settlement agreement. These terms include the following:

• John Hopkins agreed to comply with the non-monetary terms for a three-year settlement period, during which time plaintiffs’ counsel will stay involved to monitor compliance with the settlement terms and bring an enforcement action if needed;
• Within 30 days after the end of each year of the settlement period, defendants will provide plaintiffs’ counsel a list of the plan’s investment options, fees charged by those investments, and a copy of the investment policy statement (if any);
• If the plan’s fiduciaries have not done so, within 90 days of the settlement’s effective date, the plan’s fiduciaries shall retain an independent consultant with expertise in designing investment structures for large defined contribution plans who will thereafter assist the fiduciaries in reviewing the plan’s existing investment structure.
• With the assistance of the independent consultant, the plan’s fiduciaries (or a delegate thereof) shall issue requests for proposals for recordkeeping and administrative services. The requests for proposal shall request that any proposal provided by a service provider for basic recordkeeping 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, including, but not limited to, IRAs, non-plan managed account services, life or disability insurance, investment products, and wealth management services, unless a request is initiated by a plan participant.
• After conducting the request for proposal for recordkeeping services, the independent consultant shall provide a recommendation to the plan’s fiduciaries regarding whether the plan should use a single recordkeeper or more than one recordkeeper. To the extent the plan’s fiduciaries decide not to follow a recommendation, the plan’s fiduciaries shall document the reasons for that decision and provide those reasons in writing to plaintiffs’ counsel along with the consultant’s written report(s), if any, or other documentation reflecting the consultant’s recommendation and basis for such recommendation;
• Within 30 days of selecting the recordkeeper(s), the plan’s fiduciaries shall provide to plaintiffs’ counsel the final bid amounts that were submitted in response to the request for proposals and shall identify the selected recordkeeper(s), which shall be accompanied by the final agreed upon contract(s). The final agreed-upon contract(s) for recordkeeping services shall contractually prohibit the plan’s recordkeeper(s) from soliciting current plan participants for the purpose of cross-selling proprietary non-plan products and services, unless a request is initiated by a Plan participant; and
• Within 18 months of the settlement effective date, Johns Hopkins shall communicate, in writing, with current plan participants and inform them of the recordkeeping and investment structure for the plan resulting from the process described above. Plan participants shall be informed of the investment options available in the approved fund lineup, including any frozen annuity options. Participants shall be provided with a link to a webpage containing the fees and the 1-, 5-, and 10-year historical performance of the frozen accounts and the investment options that are in the plan’s approved investment structure and the contact information for the individual or entity that can facilitate a fund transfer for participants who seek to transfer their investments in frozen annuity accounts to another fund in the plan.

These are just some of the non-monetary requirements of the settlement. Also of note, in entering the settlement, John Hopkins University does not admit to wrongdoing or agree with plaintiffs’ characterization of its operation of the retirement plan.

More information is available in the text of the plaintiffs’ settlement motion, here.