Two lawsuits against fiduciaries of Duke University's 403(b) retirement plan will be settled for $10.65 million, pending a court approval of the agreement between the parties.

In 2016, an initial claim was filed against Duke's plan, which covered about 38,000 participants and held $4.7 billion in assets at the end of 2014.

Twenty lawsuits have been filed against university-sponsored retirement plans since 2016. As is common in the claims, plaintiffs in the Duke plan alleged it was loaded with expensive investments and paid excessive fees to plan recordkeepers for duplicative services.

4 recordkeepers, more than 400 investment offerings

Duke's plan had four recordkeepers and offered more than 400 investment offerings in its plan lineup, according to court documents. The use of multiple recordkeepers prevented the plan from most efficiently leveraging its size to reduce the cost of administering the plan, plaintiffs alleged.

The plan paid at least $6.4 million to $10.4 million in annual recordkeeping fees between 2010 and 2014, 830 percent higher than what the plaintiffs claimed was a reasonable charge.

In May of 2017, Duke won a partial summary judgment. The class action went on to be certified in April of 2018.

Motivating factor in settlement?

But it was a proposed amendment to the initial complaint, filed in May of 2018, that distinguishes the Duke lawsuit from other 403(b) claims, and may ultimately have been a motivating factor in the University agreeing to a settlement.

The amended claim alleged Duke used plan assets to pay for the salaries and fringe benefits of some University human resource employees, amounting to a prohibited transaction under the Employee Retirement Income Security Act.

The District Court for the Middle District of North Carolina refused the amended complaint. In response, the plaintiffs filed a second class action against Duke.

According to the plaintiffs' motion for approval of the settlement, the prohibited transactions alleged in the second lawsuit were revealed through the discovery of facts in the original lawsuit.

By the time the parties had agreed to settle last December, Duke's motion for summary judgment in the first class action was pending in the court, and the second lawsuit alleging prohibited transactions had yet to proceed to the discovery phase.

Plaintiffs in the Duke plan were represented by Schlichter, Bogard & Denton. Duke was represented by Alston & Bird and Morgan, Lewis & Bockius.

Out of the proposed $10.65 million settlement, plaintiffs attorneys are seeking $3.355 million in fees and another $825,000 for reimbursement of costs. Three class representatives are seeking $30,000, and two others $25,000. Another $172,000 will be paid to third parties to administer the settlement.

The remaining money in the settlement fund—$6.158 million—would amount to $168 per participant if split evenly among 38,000 current and former employees in the plan.

Duke agrees to revamp investment menu

Beyond the $10.65 million settlement, Duke has agreed to provide the plaintiffs' attorneys with a list of the plan's investment options and their fees for the next two years and inform plan participants of new options available in a revamped investment menu by January 1, 2020.

Duke has agreed to hire an independent consultant to recommend whether the plan's recordkeeping services should be put out for bid.

Duke will also be required to reconsider the cost of different share classes offered in the plan and revenue-sharing rebates available through share classes.

And the University agreed not to use plan assets to pay salaries and fringe benefits.

To date, one other 403(b) claim against the University of Chicago has been settled. Four other claims have been dismissed. New York University prevailed in its lawsuit after it went to a bench trial.

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Duke University settles 403(b) suit

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