Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
A lawsuit accusing Duke University’s retirement plan of high fees and poor investments is moving forward after a federal judge issued a mixed ruling on the school’s motion to dismiss ( Clark v. Duke Univ. , M.D.N.C., No. 1:16-cv-01044-CCE-LPA, 5/11/17 ).
The judge May 11 refused to dismiss allegations that Duke’s retirement plan charged excessive record-keeping and investment fees and favored the investment products offered by the school’s record keepers over lower-cost alternatives. Other claims were subject to dismissal for being filed too late or for being insufficiently supported by facts, the judge ruled.
The decision, which included no significant discussion of the claims that were allowed to proceed, came one day after a federal judge in Georgia refused to dismiss similar claims against Emory University. These are the first two substantive decisions that have been made in a series of lawsuits filed last summer against the retirement plans of 12 prominent universities, including Yale, New York University and Northwestern.
The ruling appears to accept one of the most novel claims made by this series of lawsuits: that a retirement plan can breach its duties by offering too many investment options. Plan participants claim offering too many options—Duke allegedly offered more than 400—can cause confusion and “decision paralysis.” It also prevents plans from lowering fees through consolidation of assets, the lawsuits claim.
The judge included no discussion of this theory in her ruling, but she allowed the claim to move forward based partly on Duke’s large investment lineup. By contrast, the judge hearing the Emory lawsuit explicitly rejected this idea, saying that a large investment menu “does not hurt” participants and instead gives them the opportunity to invest as they please.
The Duke and Emory rulings also differ in how they treat allegations that the plans improperly “locked into” imprudent arrangements and investments through their relationships with plan service provider TIAA.
Both Duke and Emory argued that these claims were time-barred because they challenged decisions made outside of the Employee Retirement Income Security Act’s statute of limitations for fiduciary breach claims.
The judge hearing the Duke case agreed, dismissing the “locked in” claims in their entirety. The “locked in” claim against Emory is largely moving forward, with the caveat that participants can’t seek damages for anything that occurred outside the six-year statutory window.
However, both schools will have to defend another novel claim brought by the participants—namely, that the plans erred by hiring multiple record keepers instead of consolidating services with a single record keeper that could provide lower fees.
Finally, the judge hearing the Duke case allowed the participants to move forward with claims that the school wrongly kept an underperforming fund—the CREF Stock Account—in the plan. The judge said that the school “insufficiently explained” why that claim should be dismissed.
The next word in this line of cases—which target Cornell, Columbia, Vanderbilt and others—may come from a federal judge in New York City, who is hearing the cases against both Columbia and NYU. On April 6, she told the NYU litigants that they could submit additional authorities, but they should “do it soon!”
Judge Catherine C. Eagles of the U.S. District Court for the Middle District of North Carolina wrote the decision in the Duke case. In 2016, Eagles allowed an ERISA class action challenging the proprietary mutual funds in BB&T Corp.'s 401(k) plan to survive the company’s motion to dismiss. Like her ruling in the Duke case, this decision was short and contained little discussion or reasoning.
The Duke plan participants are represented by Puryear & Lingle PLLC and Schlichter Bogard & Denton, the latter of which represents the plan participants in all 12 pending lawsuits challenging college retirement plans. Duke is represented by Parker Poe Adams & Bernstein and Morgan Lewis & Bockius LLP. Morgan Lewis also represents Emory, Vanderbilt, Johns Hopkins and the University of Pennsylvania.
To contact the reporter on this story: Jacklyn Wille in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Text of the decision is at http://www.bloomberglaw.com/public/document/CLARK_et_al_v_DUKE_UNIVERSITY_et_al_Docket_No_116cv01044_MDNC_Aug/3.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)