USC to pay $13 million to settle ERISA suit over retirement plan fee

The University of Southern California has agreed to pay $13.05 million to settle a lawsuit by nine current and former participants in two university retirement plans who alleged the plans’ high fees and duplication of services violated ERISA.

The settlement document, which also outlines some non-monetary terms, was filed Feb. 23 in a U.S. District Court in Los Angeles, four weeks after the parties announced a tentative agreement. The initial notice, announced just before a trial was scheduled to begin, didn’t provide details in Munro et al. vs. University of Southern California et al.

The settlement, which requires court approval, would end a legal battle that started in August 2016 between the university and participants in the two plans.

“Defendants expressly deny and disclaim any such wrongdoing, fault, or liability, and deny each and every claim asserted in the class action,” the settlement document said. “Defendants contend that the plans have been managed, operated, and administered at all relevant times in accordance with ERISA.”

The plaintiffs criticized the two plans’ use of four record keepers, contending that consolidation would have reduced costs and removed duplication of services for University of Southern California Defined Contribution Retirement Plan and the University of Southern California Tax-Deferred Annuity Plan.

They said the plans violated ERISA by failing to offer lower-cost versions of some investment options that were available in the marketplace.

In addition to the $13.05 million payment, defendants agreed to conduct a record-keeping RFP within 180 days of when the court approved the settlement. They will continue providing “annual training to the plans’ fiduciaries regarding their fiduciary duties under ERISA,” the document said.

The RFPs will request that candidates’ applications “include (but need not be limited to) an expression of fees in a manner that is not based on a percentage of the plans’ assets but on a total fixed fee and on a per-participant basis,” the document said.

Record keepers may not use information on participants to cross-sell investment products and services not included in the plans, the document said.

It cited as examples Individual Retirement Accounts, non-plan managed account services, life or disability insurance, investment products and wealth management services, “unless in response to a request by a plan participant.”

The lawsuit is one of the signature cases in recent years involving sponsors wanting ERISA disputes settled by arbitration rather than in court.

A U.S. District Court in Los Angeles ruled in March 2017 that the university could not compel arbitration. The 9th U.S. Circuit Court of Appeals, San Francisco, upheld the lower court ruling in July 2018. The university’s arguments “fall outside the scope of the arbitration clauses in individual employees’ general employment contracts,” the appeals court wrote.

The key issue focused on arbitration agreements that employees had to sign as a condition of employment. The courts said these agreements didn’t apply to ERISA disputes because they applied to individuals rather than as a provision of the plans.

The U.S. Supreme Court declined in February 2019 to hear the university’s petition to overturn the lower court rulings.

The University of Southern California Defined Contribution Retirement Plan had $4.63 billion in assets, and the University of Southern California Tax-Deferred Annuity Plan had $4.26 billion in assets, both as of Dec. 31, 2021, according to the latest Form 5500s.