Princeton Agrees to No Fee Increase, Among Other Things, in Lawsuit Settlement

Details of a settlement of an Employee Retirement Income Security Act (ERISA) lawsuit against Princeton University that was previously announced have been posted.

The university has agreed to pay $5.8 million to settle a lawsuit alleging excessive fees for recordkeeping and investments.

The initial lawsuit charged the university with failing to leverage its retirement plans’ collective and massive bargaining power to benefit participants and beneficiaries. Defendants were also accused of inappropriately contracting with two recordkeepers instead of one and with failing to investigate, examine and understand the real cost to participants for administrative services, thereby causing the plans to pay unreasonable and excessive fees for recordkeeping and investments.

In addition to the payment into a settlement fund, Princeton has agreed to what the settlement agreement calls “therapeutic relief.” It will not increase the plans’ recordkeeping fees for three years and will use commercially reasonable best efforts to continue to attempt to reduce recordkeeping fees. Princeton has also agreed to conduct a request for proposals (RFP) process for recordkeeping-administrative services and outside independent investment consulting services within three years after the settlement approval. The settlement agreement notes that it is possible that Princeton will retain the plans’ current recordkeepers or investment consultant based on the RFP.

The agreement also includes processes for the plans’ benefits and investment committees. By the date of the settlement approval, the committees will amend their respective charters and/or operating documents, to the extent necessary, to adopt and follow best practices for 403(b) plans as described by the plans’ current independent investment consultant. For a period of five years following the settlement approval, the investment committee will meet not less than four times per year with the plans’ current independent investment consultant, or another independent investment consultant selected after an RFP, to evaluate the expense and performance of each investment option in the plans, to review and consider changes to the investment option lineup, to review administrative and recordkeeping costs of the plans, and to investigate and pursue further strategies to reduce plan costs.

In addition, for a period of five years following the settlement approval, the benefits committee will meet with the investment committee and the independent investment consultant once a year to evaluate the expense and performance of each investment option in the plans, to review and consider changes to the investment option lineup, to review administrative and recordkeeping costs of the plans, and to investigate and pursue further strategies to reduce plan costs.

The lawsuit included allegations relating to participant loans. For loans administered by TIAA, it alleged that a portion of participants’ plan accounts were transferred to a TIAA annuity product as collateral securing the loan they actually took from TIAA’s general account. According to the lawsuit, TIAA retained for itself the difference, or “spread,” between the loan interest rate paid by participants and the interest rate the transferred amount received as investment income from the annuity product. The settlement agreement states that, by this month, Princeton will have reviewed the TIAA collateralized loan program with, but not limited to, its independent investment consultant and plans’ counsel. Princeton agrees to terminate and replace that loan program by March 2021, if not sooner, if it is found that it should be replaced based on the review or if TIAA ceases to offer it.

In other “therapeutic relief,” Princeton’s current independent investment consultant, or another independent investment consultant selected after an RFP, will continue to evaluate the CREF Stock Account and the TIAA Real Estate Account to determine whether they continue to be appropriate investment options in the plans. Princeton will correct the plans’ disclosures to participants and beneficiaries to identify the CREF Stock Account as an investment that invests in U.S. and non-U.S. equities following the settlement approval.

The the settlement agreement notes that, effective October 1, Princeton negotiated a significant reduction in the plans’ recordkeeping fees with TIAA, reducing annual fees from 6 basis points (bps) to 2.9 bps. It was further agreed that TIAA would refund to the plans any fees or other revenue sharing (including 12b-1 fees) in excess of 2.9 bps. “As a result, the plans’ total expenses on a per-participant (or ‘all-in’) basis were reduced to approximately $49 per year,” the agreement states.