Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
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 firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
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.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)