Retirement Fee Lawsuits Hit Vanderbilt, Penn, Johns Hopkins

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

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 filed against Yale, NYU, MIT, Duke, University of Pennsylvania, Vanderbilt and Johns Hopkins
  •  Lawsuits challenge fees associated with universities' retirement plans, which hold combined $27.6 billion in assets
  •  Plans should have been paying annual record-keeping fees of about $35 per participant, rather than fees between $100 and $340 per participant, lawsuits allege
  •  Plans accused of including too many investment options—between 78 and 440—when a more reasonable number would have been 15
  •  Six schools—all but MIT—are accused of including two “historically underperforming” funds in their plans: the CREF Stock Fund and the TIAA Real Estate Account
  •  Lawsuit challenges decisions of six schools—all but MIT—to use multiple retirement plan record keepers, a move that allegedly drove up fees
  •  Lawsuit against MIT takes aim at university's close relationship with Boston-based Fidelity, which served as MIT's plan record keeper

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.

Too Many Funds, Too Many Fees

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.

Universities Respond

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:

  • From Yale: “The University has not officially been served with the complaint. We are cautious and careful in administering our plans and we will defend ourselves vigorously.”—Karen N. Peart, director of external communications, via Aug. 9 e-mail
  • From NYU: “NYU only first saw the papers a very short while ago this morning, so we cannot comment at length. But it seems worth noting that, first, NYU's plans have comparatively low fees; second, decisions about our retirement plan choices are influenced by feedback from our faculty and other employees; and, third, that the named plaintiffs in this case are several faculty members who recently lost unrelated court cases they brought against NYU. NYU takes seriously the welfare of our faculty and employees—including a dignified retirement—and the retirement plans offered to them are chosen and administered carefully and prudently,” Beckman said. “We will litigate this case vigorously and expect to prevail.”—John H. Beckman, NYU spokesman, via Aug. 9 e-mail
  • From MIT: “As a general practice MIT does not comment on pending litigation.”—Kimberly Allen, director of media relations, via Aug. 9 e-mail
  • From Duke: “Duke provides a range of options that give employees flexibility in designing retirement plans to meet their individual needs. These investments are reviewed and carefully managed in accord with federal law to provide low costs and good outcomes for our employees. We will continue to commit to these guiding principles.”—Mike Schoenfeld, vice president for public affairs and government relations, via Aug. 10 e-mail
  • From Penn: “The University employs a rigorous process to review all aspects of the investment options offered to its faculty and staff to ensure they are administered with the highest degree of care and prudence. We intend to defend ourselves vigorously against this litigation.”—Phyllis Holtzman, associate vice president for university communications, via Aug. 11 e-mail
  • From Vanderbilt: “We have not yet been served with the complaint. After we have an opportunity to review the complaint, we will determine our response.”—Beth Fortune, vice chancellor for public affairs, via Aug. 11 e-mail

  •   From Johns Hopkins: “Johns Hopkins University offers its employees a generous and carefully managed benefits program, including for retirement. We are in the process of reviewing the lawsuits that were filed this week against Johns Hopkins and several other major universities across the country.”—Jill Rosen, senior media representative, via Aug. 11 e-mail.

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

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

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