Nova Southeastern University to Settle ERISA Lawsuit for $1.5 Million

Fort Lauderdale, FLOn October 9, Nova Southeastern University agreed to settle a long-running lawsuit in which participants in the Nova University Defined Contribution Plan claimed that the school had mismanaged their retirement savings by paying excessive recordkeeping fees and retaining underperforming investment funds. The plaintiffs’ motion for preliminary approval was unopposed.

Rzepkoski et al. v. Nova Southeastern University Inc., an ERISA lawsuit, focused on excessive fees paid to Teachers Insurance and Annuity Association (TIAA) and the Variable Annuity and Life Insurance Company (VALIC). Both are active in providing services to the retirement plans of universities and other non-profits.

Initially, the complaint and proposed settlement look just like any number of ERISA lawsuits that, over several years, have alleged that plan fiduciaries failed in their legal responsibility to manage plan assets wisely and for the sole benefit of participants and beneficiaries, as required by law. Rzepkoski, however, also provides insight into the value of a remedy that is roughly similar to the legal idea of “specific performance” to rectify the damage that financial mismanagement does.

Too much money, too little value

Plan participants invested more than $60 million through the TIAA Lifecycle target date funds. These funds were the plan's default investment option. But they were expensive and poorly performing compared to alternative options on the market offered by various investment companies, the employees said.

In addition, the participants claimed that they paid as much as $64 annually in recordkeeping fees, when substantially smaller plans, which presumably had less bargaining power, were paying between $5 and $12 per participant in fees.

The terms of the proposed settlement

Under the terms of the settlement, the plan will:

• make a cash payment of $1,500,000;
• submit to a review by a consultant, who will provide a written report that contains analysis and recommendations for future plan management;
• initiate a proposal for recordkeeping services to at least six of the ten largest recordkeepers for defined contribution plans; and
• retain an independent fiduciary before final approval, who will act on behalf of the plan to determine whether to authorize the release of the plaintiffs’ claims.

The last three conditions essentially require the fiduciaries to turn over significant financial management to an independent third party.

To an objective observer, it looks like a tacit admission that the fiduciaries had breached their duties under ERISA. To current and future participants, this surrender of financial control may prove to be far more valuable than the cash payments.

It’s a remedy that looks toward the future by requiring those who have failed in their responsibilities to change their behavior. This is the animating concept behind the ancient equitable remedy of “specific performance.” It might also be understood as a distant cousin of the modern idea of “restorative justice.” It’s approach to putting injured parties back in the position they would have been in when money just isn’t enough.

Money damages vs. specific performance

In most civil lawsuits, all that a successful plaintiff can hope for is money damages. That may be adequate for righting past wrongs but, except as a painful deterrent, it may not do much to prevent a defendant’s illegal actions in the future.

As a technical matter, specific performance is one of several possible remedies in a breach of contract lawsuit. It requires a party to fulfill their contractual obligations as promised, rather than paying damages. It is sometimes used when monetary damages are not enough to compensate an injured party. It also appears in Section 502 of ERISA.

It’s also not technically relevant in Rzepkoski. The analogy advanced here between specific performance and the terms of the proposed settlement is, quite frankly, a flight into the far reaches of legal theory.

The agreement between the parties in Rzepkoski is the product of negotiation, not the decision of a court or jury. This was never a breach of contract lawsuit, but a civil action brought under the terms of a federal statute.

Nonetheless, ERISA has always been something of a hybrid law – incorporating concepts originally developed in labor law, trust law and tax statutes. Recently, some federal circuits have been willing to consider importing the remedies of other areas of law into the realm of ERISA enforcement. Lawsuits in the Second, Third, Sixth, Seventh and Tenth Circuits that focus on the “doctrine of effective vindication” may be examples of similar creativity. Even laws like ERISA, which has now been around for 50 years, may be less static than some imagine.

It may now be time for participants in ERISA plans who have been harmed by financial mismanagement of their retirement savings to consider a wider range of remedies than money damages.