Duke Is Second School to Lose Round in Retirement Plan Lawsuits

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By Jacklyn Wille

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.

Too Many Investment Options?

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.

Next Ruling Could Come in NYU Case

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 jwille@bna.com

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

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