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Georgetown University joins a growing list of prominent colleges accused of allowing high-fee, poorly performing investment funds in its employees’ retirement plans.
Georgetown and two of its officers allegedly violated federal benefits law by selecting three service providers—TIAA, Fidelity, and Vanguard—for the plan, causing participants to pay duplicative, excessive fees for record-keeping and administrative services, according to a lawsuit filed Feb. 23 in the U.S. District Court for the District of Columbia. None of the providers were named defendants in the lawsuit.
The university is also accused of selecting and retaining investment options that underperformed lower-cost alternatives that were available in the market. The two participants who filed the lawsuit took issue with certain TIAA investments, including the CREF Stock Account and the TIAA Real State Account, which allegedly were “dramatically more expensive than far better” alternatives, such as Vanguard.
Georgetown is reviewing the complaint, a university spokeswoman told Bloomberg Law Feb. 26 via email. The university continually monitors its retirement plans’ investment offerings and service providers and regularly makes changes that it believes are in the best interest of plan participants, she added.
Georgetown is the latest college among more than a dozen to be hit with proposed class actions challenging their retirement plans. So far, the University of Pennsylvania is the only school to defeat one of these cases outright, with judges allowing similar challenges to proceed against the University of Chicago, Cornell, Columbia, Duke, Emory, Johns Hopkins, Princeton, and Vanderbilt. Earlier this month, a federal judge in New York declined NYU’s request for summary judgment and certified a class against the university.
In their lawsuit, the participants alleged that Georgetown failed to even evaluate the differences in compensation paid to each of the three providers, since participants investing through the TIAA and Fidelity options were paying far more for services than were those investing through the Vanguard platform, the lawsuit said. This failure cost participants millions of dollars in losses in their retirement savings in the last six years alone, the lawsuit said.
The lawsuit also highlights certain reporting errors in the participant fee disclosure by TIAA involving a number of Vanguard funds. The participants claim that these “extensive reporting errors” show the “cavalier attitude” with which Georgetown regarded its ERISA duties, or, even worse, that the University didn’t know that maybe “someone was padding the bill, and overcharging” participants who chose the Vanguard funds or Fidelity funds.
The participants took issue with the “sheer volume” of 300 total investment choices in their plans, which allegedly showed Georgetown’s failure to properly monitor and evaluate the historical performance and expense of each of these funds. The participants could invest separately and exclusively on menus of investment choices from TIAA, Vanguard, or Fidelity. The designation of 300 investment alternatives in the plan reflects an attempt by the university to insulate itself from ERISA liability at the expense of participants, the lawsuit said.
The participants seek class treatment for 24,000 individuals.
Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger & Montague represent the participants.
The case is Wilcox v. Georgetown Univ., D.D.C., No. 1:18-cv-00422, complaint filed 2/23/18.
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