Penn Is First School to Beat Retirement Plan Fee Lawsuit

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By Jacklyn Wille

The University of Pennsylvania is the first elite college to win complete dismissal of a lawsuit challenging the fees and investment options associated with its retirement plan.

A federal judge Sept. 21 ruled in Penn’s favor on every count in the proposed class action, which challenged the school’s retirement plan fees, investment lineup, and use of multiple plan record keepers ( Sweda v. Univ. of Penn. , E.D. Pa., No. 2:16-cv-04329-GEKP, 9/21/17 ).

This ruling is the first complete victory for a college accused of retirement plan mismanagement since the litigation series targeting Yale, Vanderbilt, Johns Hopkins, Cornell, and other prominent schools began in August 2016. By contrast, judges have given partial green lights to pending cases against NYU, Columbia, Duke, Emory, MIT, and Princeton.

Here, the Pennsylvania-based federal judge said the claims against the school were foreclosed by Renfro v. Unisys Corp., a 2011 decision in which the U.S. Court of Appeals for the Third Circuit rejected excessive fee claims against 401(k) plan fiduciaries. Under Renfro, plan fiduciaries aren’t required to maintain a “myopic focus on the singular goal of lower fees,” the judge said.

The judge also rejected one of the more novel theories advanced by this series of lawsuits—namely, that a retirement plan fiduciary can breach its duty by offering too many investment options. The university workers bringing these lawsuits claim that overly large investment lineups cause investor confusion and lead to higher fees. Unpersuaded, the judge said the Penn workers didn’t identify any plan participant who was confused by the lineup.

Unlike Princeton, Columbia, NYU, Duke, and Emory, Penn also succeeded in dismissing a challenge to the plan’s use of multiple record keepers. While other courts have entertained the idea that a prudent fiduciary would have consolidated and used a single record keeper, the judge hearing Penn’s case likened the record-keeping setup to bundled cable and internet service. It was perfectly reasonable for Penn to put Vanguard and TIAA funds in its plan as part of distinct service bundles that came with Vanguard and TIAA record-keeping services, the judge said.

Judge Gene E.K. Pratter of the U.S. District Court for the Eastern District of Pennsylvania wrote the decision.

Schlichter Bogard & Denton LLP and Profy Promisloff & Ciarlanto PC represented the Penn employees. Morgan Lewis & Bockius LLP represented Penn.

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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