NYU to Begin Trial Over Retirement Plan Mismanagement Claims

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By Jacklyn Wille

The litigation blitz over college retirement plans will come to a head today, when New York University becomes the first of 18 prominent colleges to defend its retirement plans at trial.

More than 20,000 current and former NYU employees are part of a class that is scheduled to begin a two-week trial on April 16 before Manhattan-based federal judge Katherine B. Forrest, who is an adjunct law professor at NYU. The employees accuse NYU of violating federal benefits law by paying high fees to its retirement plan record keepers. NYU also offered certain actively managed investment funds that carried high fees despite having no realistic expectation of higher returns, the employees say.

The case is likely to be a bellwether for litigation over college retirement plans, which has hit schools including Yale, Duke, Johns Hopkins, and Vanderbilt. Most cases have survived the schools’ early attempts to dismiss, and the NYU case is the first to be certified as a class action—with the Duke case following suit on April 13—and the first to go to trial. Forrest’s ruling in the NYU case is likely to shape how the remaining cases proceed and whether they lead to settlements, attorneys told Bloomberg Law.

Jerome Schlichter, attorney for the NYU workers and senior partner with Schlichter Bogard & Denton in St. Louis, said he was looking forward to showing in court how NYU hurt its workers’ ability to save for retirement.

“We look forward to bringing the case to trial on behalf of NYU employees and retirees,” Schlichter told Bloomberg Law April 11. “They have the same right as employees of corporations to build their retirement assets. We will show how NYU’s actions damaged their right to do that.”

A spokesman for NYU expressed optimism about the trial. “It is worth noting that most of the claims against NYU have already been dismissed,” John H. Beckman told Bloomberg Law in an April 12 email. “The trial starts on Monday, and we expect to prevail on the remaining claims.”

Looking at the Facts

Forrest’s ruling will be significant because it will be the first in this series of cases to be based on a full factual record presented in a trial setting, David Levine, an employee benefits attorney and principal in Groom Law’s Washington office, told Bloomberg Law.

“Up until now, all the decisions in these cases haven’t been based on a presentation of all facts in a trial setting,” Levine said. “That’s what makes this relevant. You’ll have a decision where a court really takes a look at the entire picture and makes determinations of fact and law. It might set some real precedent that has some impact as we go forward.”

The decision is particularly important because none of the 17 schools defending their retirement plans in court has opted to settle, Levine said. While Forrest’s decision isn’t likely to set off a flood of settlements, it could cause other schools and workers to adapt their litigation strategies or more seriously consider settling, he added.

However, the fact-specific nature of these lawsuits means Forrest’s decision might not have as much impact on the other cases as one would think, Taylor Wedge French, a partner with McGuire Woods in Charlotte, N.C., and head of the firm’s employee benefits group, said.

Cases claiming fiduciary breach under the Employee Retirement Income Security Act often turn on the specific conduct of the plan fiduciaries and whether they had a solid process for managing the plan, French told Bloomberg Law. Given this, a ruling on NYU’s conduct might not have much bearing on another school that employed a very different process.

“It’s such a fact-specific inquiry when you’re dealing with allegations of violation of the duty of prudence,” French said. “It may be difficult to infer the result of this trial on other universities.”

Battle of the Experts

The trial is expected to feature testimony from five expert witnesses, including those with ties to the worlds of finance, retirement, law, and higher education.

Because the experts have expressed such starkly opposing views, the trial could turn on which give more compelling testimony, French said.

“They have financial experts with very diametrically opposed views on some of the particular investment options that plaintiffs called out as being imprudent,” French said. “It’ll be interesting to see how that shakes itself out.”

Some of the expert declarations submitted to the court focus on two particular investments in the NYU retirement plans: the CREF Stock Account and the TIAA Real Estate Account. The NYU employees, along with employees at many other schools, have challenged these funds as poor performers and bad options for retirement savings.

NYU expert witness Daniel Fischel, a law professor and president of an economic consulting firm, told the court that neither of these funds were imprudent investments for large retirement plans. The employees’ expert witness, financial consulting firm president Gerald Buetow, said the opposite. He called the TIAA Real Estate Account “among the worst performing funds, relative to its benchmark I have ever seen in my 25 years of experience.”

What’s Next?

The NYU lawsuit isn’t the only university retirement plan case poised for a significant ruling. Employees at Emory and the Massachusetts Institute of Technology are awaiting decisions on whether their cases can proceed as certified class actions.

Two lawsuits are headed for appellate decisions. The U.S. Court of Appeals for the Third Circuit has been asked to consider the case against the University of Pennsylvania, which raised many of the same claims made against NYU. In 2017, Penn became the first and only school to defeat one of these lawsuits outright.

The case against the University of Southern California is another one to watch. The school tried to have the case dismissed by arguing that the worker who filed suit had signed an arbitration agreement preventing him from bringing a class action. A federal judge ruled against the school in 2017, saying that individual arbitration agreements don’t bar lawsuits like this one, in which a retirement plan participant brings claims on behalf of the plan as a whole.

Judges have issued similar rulings in cases against Franklin Templeton and Charles Schwab. The U.S. Court of Appeals for the Ninth is expected to rule on the question in the coming months.

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