In a first, University of Chicago settles 403(b) lawsuit for $6.5 million

The University of Chicago has agreed to settle a retirement-plan lawsuit for $6.5 million, becoming the first of about 20 prominent universities facing allegations over 403(b)-plan mismanagement to take such a step.

Plaintiffs filed the lawsuit, Daugherty et al v. The University of Chicago, in May 2017. They claimed the university caused its plan participants to pay excessive record-keeping and investment-management fees, depleting their retirement savings.

The university denies the allegations and contends its conduct was “proper at all times,” according to a joint statement released by the defendant and plaintiffs.

The University of Chicago is just one of many higher-education institutions to be targeted for allegedly having excessive fees in their 403(b) plans, a type of defined-contribution plan for non-profits.

Jerome Schlichter, an attorney who pioneered 401(k) fee litigation, brought several lawsuits in August 2016 against universities, filing around a dozen over a matter of 10 days.

Now, there are 19 class-action cases pending in court that involve 403(b)-plan management, according to the joint statement issued in the University of Chicago case. Some, such as the University of Chicago case, have come from law firms other than Mr. Schlichter’s.

A federal judge dismissed a lawsuit against the University of Pennsylvania in September 2017. While defendants in many of the other lawsuits have succeeded in getting at least some charges dropped, judges have allowed other claims to advance. New York University was the first school to challenge allegations levied against it in a court trial, closing arguments of which ended last week.

“Given that we’ve seen only one case dismissed, and around 20 lawsuits still in the pipeline, I think it’s too early to point to a clear trend one way or the other,” said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

“There’s no question that a lot of plan sponsors will be carefully examining the specific terms of the University of Chicago’s pending agreement,” he added.

Aside from the monetary settlement, the agreement includes structural changes to the university 403(b) plans. For example, the university must not increase per-participant record-keeping fees for three years, and make “reasonable best efforts” to continue trying to reduce them. The university also implemented a new investment menu in April, which included reducing the number of fund options.

A federal judge granted preliminary approval of the settlement May 23. It remains subject to final court approval.