University of Chicago Latest College Hit With Retirement Plan Suit

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By Carmen Castro-Pagan

The University of Chicago is accused in a new lawsuit of carrying high fees and offering a poor selection of investment funds in its two retirement plans ( Daugherty v. The University of Chicago , N.D. Ill., No. 1:17-cv-03736, complaint filed 5/18/17 ).

The lawsuit seeks class treatment for over 36,000 participants in the university’s retirement plans, which hold more than $3 billion in assets combined.

The lawsuit alleges the university selected and retained investment funds and insurance company annuities that caused the plans to incur far higher administrative fees and expenses relative to the size of the plans, causing participants millions of dollars in economic loss. The university selected numerous underperforming investment options when lower-cost alternatives were available, according to the complaint filed May 18 in federal court in Illinois.

The lawsuit comes nine months after St. Louis-based law firm Schlichter Bogard & Denton filed 12 lawsuits against prominent American universities, including Yale, NYU, Vanderbilt, and Cornell for allegedly allowing their retirement plans to charge excessive administrative fees and retaining too many investment options. It also comes less than two weeks after federal courts in Georgia and North Carolina refused to dismiss most claims against Emory University and Duke, respectively. The complaint against the University of Chicago was filed by three law firms—Schneider Wallace Cottrell Konecky Wotkyns LLP, Wexler Wallace LLP, and Berger & Montague.

“There will be more lawsuits against prominent universities,” Paul Secunda, a Marquette University law professor who specializes in labor and employment law, told Bloomberg BNA. It isn’t surprising that they are going against the prominent universities because they are the ones that have larger defined contribution plans, he said.

I wouldn’t be surprised to start seeing pro-plaintiff class settlements soon, Secunda added.

TIAA Investments and Loans

The lawsuit against University of Chicago targets the plans’ investment choices managed by the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), including annuities, pooled separate accounts, and mutual funds. The university’s fiduciary decision-making process was either “flawed or badly executed” due to the inclusion of a “dizzying array” of 35 TIAA-CREF and 87 Vanguard investment options, the complaint says.

The lawsuit also targets the TIAA loan program, which allegedly requires excessive collateral as security for repayment of loans taken by participants. The loan program charges excessive fees in violation of the Labor Department’s rules for participant loan programs, the lawsuit alleges.

This isn’t the first time TIAA has confronted legal challenges related to the company’s administration of retirement plan loans. Earlier this year, a participant in Washington University’s 403(b) retirement plan accused the financial institution of pilfering $50 million in plan loan repayments.

One of the main claims in the lawsuit against the University of Chicago is that the plan offered investor shares rather than institutional shares, Eric Lechtzin of Berger & Montague told Bloomberg BNA. There is no rational basis for selecting institutional class shares for 17 of the investment choices and investor class shares for the remaining 70, the lawsuit alleged. If the selection of these share classes was intended to offset the cost of record-keeping, “it was an exceedingly poor decision,” the lawsuit said.

The University didn’t immediately respond to Bloomberg BNA’s request for comment.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

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

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