Emory Is First College to Lose in Retirement Plan Lawsuits

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By Jacklyn Wille

Emory University must continue defending a lawsuit accusing its retirement plans of carrying high fees and offering poor investment options ( Henderson v. Emory Univ. , N.D. Ga., No. 1:16-cv-02920-CAP, 5/10/17 ).

The May 10 decision refusing to dismiss most claims against Emory is the first substantive ruling in the series of proposed class actions filed in August 2016 against the retirement plans of 12 prominent American universities including Yale, New York University and Duke. Each school is accused of including too many investment options in its retirement plan—Emory is said to have 111—and charging participants excessive fees for record keeping and administrative services, often because of the school’s decision to use multiple record keepers.

In a victory for retirement plan participants at Emory, the judge accepted the theory that a plan can breach its duties by offering higher-cost retail share classes when identical institutional share classes are available at a lower cost. The participants also advanced claims related to actively-managed funds, excessive record-keeping fees, poorly performing funds and the use of multiple record keepers.

However, the judge rejected the novel theory that offering too many investment options can be a fiduciary breach. The Emory plan participants argued that too many options caused confusion and “decision paralysis,” but the judge disagreed. “Having too many options does not hurt the Plans’ participants, but instead provides them opportunities to choose the investments that they prefer,” the judge said.

“We’re pleased that the decision agreed with our position, that this case should move forward,” Jerry Schlichter, managing partner of Schlichter Bogard & Denton LLP in St. Louis and counsel for the participants, told Bloomberg BNA. “The decision means that we will be able to present the full amount of compensation we are seeking for the losses incurred by Emory University employees and retirees. University employees have the same right to build their retirement assets as employees of companies and this decision reinforces that.”

Counsel for Emory didn’t respond to Bloomberg BNA’s request for comment.

Like the cases against other colleges, the lawsuit against Emory attacked the school’s retirement plans under a variety of theories. Some claims, like those criticizing the number of investment options or the use of multiple record keepers, are fairly novel in the world of ERISA litigation.

In largely denying Emory’s motion to dismiss, the judge allowed these claims to proceed:

  •  that Emory imprudently chose retail-class shares instead of institutional-class shares;
  •  that Emory imprudently chose actively managed funds affiliated with the plan’s record keepers without investigating alternative options;
  •  that certain plan investments carried unnecessary layers of fees;
  •  that Emory imprudently kept underperforming investments in the plan;
  •  that Emory should have offered a stable value fund in lieu of an annuity fund offered by plan record keeper TIAA;
  •  that Emory’s revenue-sharing arrangement with plan record keepers caused participants to pay excessive fees;
  •  that Emory imprudently used three record keepers instead of one;
  •  that Emory engaged in ERISA-prohibited transactions; and
  •  that Emory acted disloyally.
Certain other claims involving prohibited transactions were dismissed or trimmed.

Judge Charles A. Pannell Jr. of the U.S. District Court for the Northern District of Georgia wrote the decision.

The Emory plan participants are represented by Swift Currie McGhee & Hiers and Schlichter Bogard & Denton LLP, the later of which represents the plan participants in all 12 lawsuits against college retirement plans. Morgan Lewis & Bockius and Strickland Brockington Lewis represent Emory.

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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