Prestigious Colleges Defend Retirement Plan Management

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Oct. 12 — “Paternalistic,” “cookie-cutter,” “assembly-line” and “fundamentally flawed”: That’s how several prominent universities characterized the recent series of lawsuits accusing them and their peers of mismanaging their retirement plans.

Between Oct. 5 and Oct. 11, six schools—Johns Hopkins University, Duke University, Massachusetts Institute of Technology, Vanderbilt University, Emory University and Cornell University—argued for dismissal of pending lawsuits that attack the fees charged by their retirement plans and the large number of plan investment options.

The 12 colleges targeted by these lawsuits manage more than $46 billion in combined retirement plan assets for the benefit of more than 380,000 employees and former employees. The lawsuits were filed during a nine-day blitz in August by St. Louis law firm Schlichter Bogard & Denton, which is known for leading the decadelong litigation effort against 401(k) plan fees and obtaining multimillion-dollar settlements from Boeing Co., Lockheed Martin Corp. and Novant Health Inc.

René E. Thorne, an employee benefits litigator and the managing principal for Jackson Lewis P.C. in New Orleans, told Bloomberg BNA that the dismissal motions made many strong arguments that may hold sway with some judges. Even so, she said the cases may be around “for the long haul,” because judges are likely to give university employees another chance to plead their claims.

Lawsuits Against College Retirement Plans

Cassell v. Vanderbilt Univ.Cates v. Trs. of Columbia Univ.Clark v. Duke Univ.Cunningham v. Cornell Univ.Divane v. Nw. Univ.Henderson v. Emory Univ.Kelly v. Johns Hopkins Univ.Munro v. Univ. of S. Cal.Sacerdote v. N.Y. Univ.Sweda v. Univ. of Penn.Tracey v. Mass. Inst. of Tech.Vellali v. Yale Univ.

Decision Paralysis

The filings attack the lawsuits on multiple fronts, taking particular aim at the idea that a large menu of retirement plan investment options—Duke and Johns Hopkins are accused of having 400 and 440 funds, respectively—leads to “decision paralysis” among investors. While MIT and Cornell call this a “paternalistic” argument, Duke and Emory say it ignores the fact that the “brightest minds in the country” participate in these university retirement plans.

Moreover, for all the talk of decision paralysis, none of the complaints include any indication that a specific investor was confused or paralyzed, five colleges argue.

Thorne said this focus on the sophisticated nature of the plans’ participants was an interesting argument that could lead to new types of evidence not typically seen in Employee Retirement Income Security Act litigation.

“I’m aware of at least one university out there that is going to be able to get evidence that the professors, these sophisticated and highly educated participants, would balk if they tried to change the investment options,” Thorne said. “They’d say, ‘We don’t need you to baby-sit us, and we know how to invest and what we want to invest in.’”

Robert A. Izard, a litigator with Izard Kindall & Raabe in West Hartford, Conn., who represents employees in other lawsuits over retirement plan management, disagreed with this characterization.

“A university is like any other business, and a lot of the people there who aren’t academics are no different than workers everywhere else,” Izard told Bloomberg BNA.

Izard also challenged the idea that the average university professor has superior knowledge regarding retirement investing.

“That may be true of a professor in the business school,” Izard said, but a professor of Russian language, for example, “won’t have any more expertise than anyone else.”

Brokerage Windows

Several schools point to decisions by federal appellate courts approving of large plan investment lineups and brokerage windows, including a 2009 decision by the U.S. Court of Appeals for the Seventh Circuit giving the OK to a Deere & Co. plan that allowed participants access to 2,500 different funds.

Charles F. Seemann III, an employee benefits litigator and a principal with Jackson Lewis P.C. in New Orleans, told Bloomberg BNA that the allegations of too many investment options may be attributable to the plaintiffs’ bar “overplaying its hand.”

This “paternalistic notion” is based on the idea that participants can’t take care of themselves, Seemann said. Further, claims like these are akin to claiming that brokerage windows—a common plan feature that allows participants to invest in a wide array of funds outside their plan’s standard investment lineup—should be viewed as “per se imprudent,” he said.

What’s the Harm?

With the exception of MIT, each school argues that the retirement plan investors involved in the lawsuits lack constitutional standing to bring their claims.

That’s because the complaints fail to indicate which funds the investors owned and thus how they were affected by the plan fees and performance, the schools contend.

This argument isn’t likely to derail the lawsuits, because it’s something that “could easily be fixed in an amended complaint,” according to Izard.

Too Many Lawsuits

Some filings say that Schlichter brought largely identical lawsuits against 12 different schools. Several schools say this factor undermines the claims of fiduciary imprudence under ERISA.

“The standard imposed by ERISA is what ‘like’ fiduciaries would do or decide under like circumstances,” Emory wrote in its motion to dismiss. “By claiming that twelve leading universities in the country all acted imprudently when making similar decisions, Plaintiffs expose the implausibility of their claims.”

Seemann credited this idea as “absolutely a valid argument” but said it was nevertheless unlikely to convince a judge to dismiss a case. Courts tend to be “forgiving” of this litigation strategy, even though it may suggest “a less than genuine approach to pleading a claim,” he said.

Izard pushed back on the idea that the university workers’ claims were undermined by the large number of schools accused of similar misdeeds. The standard of conduct under ERISA isn’t that of a reasonable university, but that of a “reasonably prudent fiduciary of a retirement plan,” Izard said.

Schlichter No Expert?

Duke and Emory, which both are represented by the same lawyers, take an additional swipe at Schlichter itself. While the complaints paint Schlichter as an expert on retirement plan fees and investments, none of the firm’s experience specifically deals with university plans organized under tax code Section 403(b), the colleges claim.

Finally, all of the lawsuits except the one against MIT challenge the performance of two particular investment funds held by the plans—the CREF Stock Fund and the TIAA Real Estate Account. Vanderbilt attempted to turn this challenge on its head, saying, “If anything, that Plaintiffs only challenge the performance of two funds out of hundreds underscores that the fiduciary process is working.”

MIT is represented by O’Melveny & Myers LLP and Goodwin Procter LLP. Johns Hopkins is represented by Morgan Lewis & Bockius LLP, which also represents Vanderbilt, along with Bass Berry & Sims PLC. Alston & Bird LLP represents Duke and Emory. Cornell—which hasn’t yet filed a formal motion to dismiss—is represented by Mayer Brown LLP.

The other colleges targeted in this litigation effort, which include Yale University, New York University, and the University of Southern California, have deadlines to file similar motions that range between Oct. 14 and Nov. 7.

Thorne, Seemann and Izard aren’t involved in the litigation.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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