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Aug. 11 — Vanderbilt University, the University of Pennsylvania and the Johns Hopkins University are the latest prominent colleges to be hit with lawsuits over the fees charged by their retirement plans.
On Aug. 9 through 11, St. Louis law firm Schlichter Bogard & Denton, which has led the decadelong litigation effort against 401(k) plan fees, filed proposed class actions against at least seven different American universities, including Yale University, New York University, the Massachusetts Institute of Technology and Duke University. The complaints raise novel arguments about the colleges' retirement plans—namely, that they included too many investment options, which drove up fees and caused investors to suffer from “decision paralysis.”Fast Facts
Lawsuits over retirement plan fees have come at a rapid-fire pace since 2015, when the U.S. Supreme Court affirmed the duty of plan fiduciaries to monitor investments on an ongoing basis and largely eliminated a key defense to these types of lawsuits. That year also saw several high-profile settlements in plan fee cases brought by Schlichter, including a $57 million deal with Boeing Co., a $62 million settlement with Lockheed Martin Corp. and a $32 million agreement with Novant Health Inc.
In recent months, new lawsuits challenging 401(k) fees have targeted such companies as Chevron Corp., American Airlines Inc., Safeway Inc., American Century and Anthem Inc. While these plans—and indeed most plans targeted by fee litigation—hold billions or hundreds of millions of dollars in assets, plans with as little as $25 million or $9 million have been targeted, as well.
This new series of lawsuits against major American universities presents an interesting twist, because most of the targeted universities sponsor 403(b) plans, rather than the traditional 401(k)s available at many companies. Only certain entities, such as public education organizations or nonprofit groups, can sponsor 403(b) plans.
The lawsuits make the novel argument that plan fiduciaries can breach their duties by including too many investment options in a plan. According to the complaints, by spreading plan assets out over many different investments, plan fiduciaries undermine their ability to negotiate lower fees for any particular investment. The complaints also cite research suggesting that investors become confused and paralyzed when confronted with too many options.
On that point, the complaints argue that having many actively managed funds within the same investment style causes plans to effectively have “an index fund return, while paying much higher fees for active management than the fees of a passive index fund.”
The complaints allege that the Johns Hopkins plan included 440 investment options at one point. Duke's plan allegedly contained more than 400, and MIT's plan is said to have had 340.
According to the complaints, a reasonable number of investment options in a large retirement plan is about 15.
In addition to challenging the number of investment options in the colleges' retirement plans, six of the seven lawsuits criticize the universities for employing multiple retirement plan record keepers. This caused the plans to pay excessive and duplicative record-keeping fees, the lawsuits allege.
Bloomberg BNA reached out to the universities being sued for their thoughts on the lawsuits. Most defended their retirement plans against the allegations. Their full statements are below:
The case against Vanderbilt is Cassell v. Vanderbilt Univ. , M.D. Tenn., No. 3:16-cv-02086, complaint filed 8/10/16 .
The case against Johns Hopkins is Kelly v. The Johns Hopkins Univ. , D. Md., No. 1:16-cv-02835, complaint filed 8/11/16 .
The case against the University of Pennsylvania is Sweda v. Univ. of Penn., E.D. Pa., No. 2:16-cv-04329-GEKP, complaint filed 8/10/16 . The complaint, which is in two parts, is available here and here.
To contact the reporter on this story: Jacklyn Wille in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Text of the complaint against Vanderbilt is at https://www.bloomberglaw.com/public/desktop/document/Cassell_et_al_v_Vanderbilt_University_et_al_Docket_No_316cv02086_?1470920324. Text of the complaint against Johns Hopkins is at https://www.bloomberglaw.com/public/desktop/document/Kelly_et_al_v_The_Johns_Hopkins_University_Docket_No_116cv02835_D?1470920325. Text of the complaint against Penn, which is in two parts, is available at http://www.bloomberglaw.com/public/document/SWEDA_et_al_v_THE_UNIVERSITY_OF_PENNSYLVANIA_et_al_Docket_No_216c and http://www.bloomberglaw.com/public/document/SWEDA_et_al_v_THE_UNIVERSITY_OF_PENNSYLVANIA_et_al_Docket_No_216c/1.
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