Court filings made this week show that Johns Hopkins has settled its ERISA fee case on proposed terms that include making a $14.5 million settlement payment, the second highest settlement in a 403(b) fee case, behind Vanderbilt ($14.5 million), and ahead of Duke ($10.65 million), U. Chicago ($6.5 million) and Brown ($3.5 million). The most eye-catching feature of this proposed settlement is not the size of the monetary payment, but rather the litany of non-monetary obligations that Johns Hopkins is agreeing to undertake for the next three years.
The settlement documents submitted to the Court reveal that plaintiffs and Johns Hopkins reached a tentative agreement on the monetary settlement of their long-running fee litigation in April 2019. But “Plaintiffs also required non-monetary relief in the form of changes to the Plan going forward.” Negotiating those additional non-monetary items took the parties another two or three months to finalize.
Onerous Non-Monetary Features
Johns Hopkins agreed to some significant and intrusive non-monetary concessions:
- Three-Year Period of Monitoring by Plaintiffs’ Counsel – during which “Plaintiffs’ counsel will stay involved to monitor compliance with the settlement terms and bring enforcement action if necessary.”
- Provide Customized Annual Reports to Plaintiffs’ Counsel – including a list of the Plan’s investment options, fees charged by those investments, and a copy of the Investment Policy Statement (if any).
- Retain an Independent Consultant – who will assist the fiduciaries in reviewing the Plan’s existing investment structure (including investment options in the “vendor windows” and those that are frozen to new participant contributions) and developing a recommendation for the Plan’s investment structure (including recommending the removal of any investment options included in the Plan that are not monitored by the Plan’s fiduciaries, a mapping strategy (if applicable) for any funds recommended to be removed from the Plan, and treatment of any assets that are now frozen to new participant contributions). If the fiduciaries do not follow the independent consultant’s recommendations, they will document the reasons and provide them to Plaintiffs’ Counsel.
- Issue RFP’s; Forbid Cross-Selling – for recordkeeping and administrative services, including an agreement by the service provider not to solicit current Plan participants for the purpose of cross-selling proprietary non-Plan products and services, including IRA’s, insurance and many other specified items.
- Share RFP Bids with Plaintiffs’ Counsel – including the final bid amounts that were submitted in response to the RFPs (but apparently not the identity of all bidders). The Fiduciaries shall provide copies of the winning contracts to Plaintiffs’ Counsel.
- Communicate the Results of Reviews and RFPs – to participants within 18 months. Among other things, 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.
- Consider Specifically-Identified Factors – when determining investment options, including the cost of different share classes and the availability of revenue sharing rebates.
Why These Non-Monetary Terms on Top of Cash?
Plaintiffs’ Counsel have asked the Court to approve payment of their fees based solely on the cash portion of the settlement (not more than one-third of $14.0 million, or $4,666,667). So why did Plaintiffs spend two or three additional months negotiating for non-monetary items? They say in their court filings that the non-monetary terms “materially add to the total value of the settlement” and “ensure that current and future participants in the Plan are offered a prudently administered retirement program” going forward. So they use the non-monetary concessions as a way to justify their cash-based fee request, though not in a formulaic sense.
The more interesting question is why did the Johns Hopkins fiduciaries agree to non-monetary terms that contractually (and judicially) entangle themselves with the Plaintiffs’ Counsel for another three years? Some defendants see non-monetary concessions as a “cost-free” way to settle a case for a smaller cash payment. But they don’t always account for the soft costs (inconvenience, compliance costs, and the burden of having an adversary looking over your shoulder from inside the tent) when they agree to ongoing non-monetary obligations. With a purely cash payment, defendants no longer have to deal with the plaintiffs’ lawyers who sued them. With non-monetary relief in the form of changes to the way the plan is run, there is an ongoing relationship between parties who have called a truce, but where one side has agreed to conduct itself in a certain way under the watchful eye of the other. The ingredients for future disputes are present.
If the settlement is approved by the Court (as is necessary to settle a class action such as this), these non-monetary obligations will be both contractual (per the terms of a signed settlement agreement) and judicial (to the extent incorporated or approved in a final order approving the class action settlement). But there is no mention of amending the Plan documents to incorporate these non-monetary settlement terms, these so-called “changes to the Plan going forward.” As non-monetary settlement terms become more common, and more intrusive into the fiduciaries’ process, what happens, one wonders, if a conflict arises between the terms of the Plan documents and the terms of a class action settlement?