Yale University Must Defend Challenge to Retirement Plan Fees (1)

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

Yale University is the latest college to lose an early round in a proposed class action challenging how it manages its retirement plan.

A federal judge on March 30 refused to dismiss most claims against the school, including claims challenging the retirement plan’s administrative and investment fees. The Yale workers who filed suit are also moving forward with claims challenging the “locked-in” nature of the plan’s record-keeping services, which the judge said may have prevented the school from properly monitoring the plan’s investments and record-keeping fees.

The workers scored another big win when the judge declined to dismiss claims that Yale was wrong to offer retail share classes of various plan investments.

The Yale lawsuit is one of a growing number of Employee Retirement Income Security Act cases to argue that plan fiduciaries should be held liable if they offer more expensive retail share classes when identical institutional share classes are available at a lower cost. The federal courts have disagreed over whether this is a viable claim under ERISA. Judges have allowed such claims to proceed against Cornell, Emory, and MIT, while Johns Hopkins, Columbia, and the University of Pennsylvania saw such claims dismissed. In 2017, a long-running class action against Edison International forced the company to pay more than $13 million for retirement plan violations, including its decision to offer retail share classes.

Yale is one of more than a dozen prominent colleges to be hit with proposed class actions challenging their retirement plans in recent years. So far, the University of Pennsylvania is the only school to defeat one of these cases outright, with judges allowing similar challenges to proceed against Cornell, Columbia, Duke, Emory, New York University, Johns Hopkins, Princeton, Vanderbilt, and the University of Chicago.

The March 30 decision in the Yale case was mostly a victory for the university workers who filed suit, but the judge did dismiss some claims against the school. The judge dismissed allegations that the school acted disloyally in managing its retirement plan.

The judge also said it wasn’t wrong for Yale to offer “too many” investment options in its retirement plan. The workers said overly large investment lineups leave employees confused and paralyzed by indecision, but the judge said they offered no indication that any specific employee was actually confused by Yale’s investment lineup.

Judge Alvin W. Thompson of the U.S. District Court for the District of Connecticut wrote the decision.

Schlichter Bogard & Denton LLP and Cohen & Wolf PC represent the university workers. Mayer Brown LLP represents Yale.

The case is Vellali v. Yale Univ., D. Conn., No. 3:16-cv-01345-AWT, order partly denying motion to dismiss 3/30/18.

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