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New York University employees failed for a second time to hold the school liable for putting higher-cost, retail share classes of mutual funds in their retirement plans.
A federal judge Oct. 19 refused to undo an August decision dismissing the workers’ claim that NYU acted imprudently when it offered retail share classes in its retirement plans instead of institutional share classes that were allegedly identical and less expensive. A retirement plan won’t be liable for offering a bad or expensive investment if the overall “mix” of investments is reasonable, the judge said ( Sacerdote v. N.Y. Univ. , S.D.N.Y., No. 1:16-cv-06284-KBF, order denying motion for reconsideration 10/19/17 ).
The proposed class action against NYU is one of a growing number of Employee Retirement Income Security Act cases to argue that plan fiduciaries should be held liable if they offer more expensive retail share classes when identical institutional share classes are available at a lower cost. The federal courts have disagreed over whether this is a viable claim under ERISA. Judges have allowed these claims to proceed against Cornell, Emory, and MIT, while Johns Hopkins, Columbia, and the University of Pennsylvania saw these claims dismissed.
In September, a long-running class action against Edison International forced the company to pay more than $13 million for retirement plan violations, including its decision to offer retail share classes.
In the past year, 16 prominent colleges were targeted by class actions challenging the fees and investment lineups of their retirement plans. Many cases have seen certain claims survive motions to dismiss. So far, only the University of Pennsylvania has succeeded in getting the case against it completely dismissed.
Although the NYU workers asked the judge to reconsider dismissing several of their claims, they’ve succeeded in advancing several other claims against the university. Specifically, the judge gave the green light to claims challenging the record-keeping fees NYU paid to TIAA and Vanguard and certain actively managed funds that allegedly carried high fees despite having no realistic expectation of higher returns.
In addition to the challenge to retail share classes, the judge also refused to revive the NYU workers’ claim that the school failed to properly monitor other fiduciaries of its retirement plan. The workers said they discovered new evidence supporting this claim, but the judge disagreed.
Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York wrote the decision. Forrest is also hearing the pending case against Columbia.
Schlichter Bogard & Denton LLP represents the workers. DLA Piper LLP represents NYU.
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