Vanderbilt University recently settled a case in which plaintiffs alleged that, among other things, the university breached its fiduciary duty under ERISA by allowing the recordkeeper of one of its retirement plans to access confidential information of plan participants and use the information for its own benefit. The recordkeeper was allegedly using participant information to promote or sell other financial products it provides. Plaintiffs argued that the plan sponsor breached its duties of loyalty and prudence by allowing the recordkeeper to access participant information and profit from it.
Although the case settled and the court did not rule on the merits of the case, the settlement may signal a new wave of ERISA litigation. The plaintiffs were represented by the firm
Schlichter, Bogard & Denton, LLP, who has obtained several large and notable settlements in litigation over excessive fees in 401(k) plans. Accordingly, plan sponsors should monitor any developments in similar cases and assess whether their plans’ recordkeepers are using participant information to cross-sell or promote other products or services.
Many service agreements with recordkeepers or other service providers authorize the service provider to use participant information to promote other products and services. Given these recent developments in ERISA litigation, plan sponsors may want to review their service agreements and consider whether to authorize such use.
You can read the settlement here.