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University of Miami to Settle ERISA Lawsuit for $1.85 Million

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Plan participants claimed excessive administrative fees

Miami, FL On November 23, the University of Miami and participants in five of its retirement plans agreed to settle proposed class action ERISA lawsuit. The agreement provides for $1.85 million and structural safeguards to protect participants’ retirement savings in the future. The university and the plans' fiduciaries have agreed not to increase current fees for recordkeeping services in the three years after the settlement effective date. As an additional safeguard, the university will also retain an independent fiduciary.

Under the terms of the settlement, each of the more than 20,000 participants will reportedly receive an average payment of less than $50. Nonetheless, the unopposed motion for preliminary approval argues that “[t]he proposed Settlement is fair, reasonable, adequate, and in the best interests of Settlement Class Members.” If approved, the settlement will bring Santiago v. University of Miami, which had been pending in the Southern District of Florida since April 2020, to a close.

Settlement negotiations followed partial dismissal

In March a Magistrate Judge had recommended to the Southern District that the university’s motion to dismiss be granted in part and denied in part. Of the three original breach of fiduciary counts based on:
  • unreasonable administrative fees;
  • unreasonable investment fees and performance losses; and
  • failure to monitor fiduciaries and service providers,
only the first remained. Had the lawsuit been certified to proceed as a class action, however, it is possible that some or all of the dismissed counts would have been reinstated. Settlement negotiations followed shortly thereafter.

Excessive recordkeeping costs  

The university offers defined-contribution retirement plans, under which terms it chooses a menu of investment options among. Although the participants direct their own contributions, the university controls management of the plan. This includes the hiring of third-party recordkeepers. Costs are passed on to participants.

Retirement plan fiduciaries typically try to control these costs by:
  • soliciting competitive bids at regular intervals;
  • monitoring revenue sharing arrangements; and
  • requiring rebates of excessive revenue sharing compensation to the plan.
Absent a lawsuit, the fiduciaries are largely left to police their own cost-control measures. This has proved to be a point of contention.

The Santiago plaintiffs largely relied not on the argument that the costs per se, were excessive. Rather, their claims focused on whether the fiduciaries failed to have an adequate process in place. As evidence, they assert that the plans had as many as six recordkeepers, which led to duplicate services and fees.

ERISA duties of prudence and loyalty – not results

ERISA imposes duties of prudence and loyalty on retirement plan fiduciaries. The duty of prudence mandates that a plan fiduciary act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Individual trustees must use appropriate methods to investigate the merits of the investment and to structure the investment. The standard is an objective one, and the fiduciary's own lack of experience or good faith efforts does not excuse a failure to act with act with the necessary care, skill, prudence, and diligence. “Good heart, empty head” doesn’t fly.

The duty of loyalty requires fiduciaries to act solely in the interest of the participants and beneficiaries for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan. It prohibits trustees from engaging in transactions that involve self-dealing or that otherwise involve or give rise to conflict between the fiduciary duties and personal interests. One hand does not wash the other.

As a complication, however, the law does not require that retirement plan fiduciaries achieve good investment results. Therefore, these breach of fiduciary duty lawsuits generally focus on process rather than on substantive proof that fees are excessive. The plaintiffs’ evidence offered in such cases is often largely statistical.

And settlement is the usual result

In recent years it has become increasingly common for excessive fee and administrative mismanagement lawsuits to settle after some pre-trial motion practice. The defendant retirement plan usually focuses on reducing the financial exposure it might otherwise face from a large settlement.

Although the harm to the financial soundness of the retirement plan may have been substantial, the financial impact to each affected individual may be relatively small. It is rarely in either party’s interest to undertake the cost of a trial or the risk of an adverse result. That seems to have been the story in Santiago.


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