Cornell, MIT Lose Rounds in Retirement Plan Litigation

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Cornell University and Massachusetts Institute of Technology can’t escape proposed class actions challenging the administrative fees and investment options in their multibillion-dollar retirement plans ( Cunningham v. Cornell Univ. , S.D.N.Y., No. 1:16-cv-06525-PKC, order denying in part motion to dismiss 9/29/17 and Tracey v. Mass. Inst. of Tech. , 2017 BL 347217, D. Mass., No. 16-11620-NMG, rejecting in part and accepting in part magistrate judge’s report and recommendation 9/29/17 ).

A federal judge Sept. 29 refused to dismiss key portions of the lawsuit against Cornell, including claims that the school was wrong to use multiple record keepers and to offer high-fee actively managed funds and certain underperforming investment options. However, the judge dismissed charges that Cornell shouldn’t have offered so many investment options and shouldn’t have agreed to a “lock-in” relationship with one of its record keepers, TIAA.

On the same day, a different federal judge kept a similar lawsuit against MIT alive, refusing to dismiss claims that MIT acted imprudently by charging excessive record-keeping fees and failing to choose the least expensive share classes for some of the plan’s investment options. The judge’s ruling, which adopted much of the reasoning in a magistrate judge’s 59-page report and recommendation, included no legal analysis but said that an order with accompanying legal reasoning “will follow.”

In the past year, 16 prominent colleges were targeted by class actions challenging the fees and investment lineups of their retirement plans. Complaints against NYU, Columbia, Duke, Emory, Princeton, Johns Hopkins, and the University of Chicago had varying degrees of early success. On Sept. 21, the University of Pennsylvania became the only one of the lot so far to win complete dismissal of a lawsuit challenging its retirement plan.

In the Cornell case, Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York largely followed the decision in the case against NYU, which was issued by a different judge on the same court.

However, Castel departed from the NYU decision on one important point: whether a retirement plan fiduciary can breach its duties by offering higher-cost retail shares of mutual funds when identical, institutional share classes were available at a lower cost. This claim was dismissed against NYU, but Castel allowed it to proceed against Cornell, saying that it may be a fiduciary breach to offer retail share classes without investigating the possibility of lower-cost institutional share classes.

The decision in the MIT case was written by Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts. Although Gorton largely followed the magistrate judge’s report, his ruling differed from the report on three points.

Specifically, Gorton said the MIT employees could proceed with a prohibited transaction claim but not with claims of either insufficient fiduciary monitoring or having a “subjective intent to benefit a party in interest.”

Schlichter Bogard & Denton LLP represents the plan participants suing both Cornell and MIT, along with Fair Work P.C. in the MIT case. Mayer Brown LLP represents Cornell. Goodwin Procter LLP and O’Melveny & Myers LLP represents MIT.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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