3 More University Retirement Plans Draw Excessive Fee Suits

The “hits” just keep on coming with the latest wave of excessive fee litigation, with three more university retirement plans targeted.

A decade ago, the law firm of Schlichter, Bogard & Denton launched a dozen excessive fee lawsuits against a multi-billion dollar 401(k) – in the past week they’ve done so against seven in the higher education sector, both 403(b) and 401(k).

The most recent wave includes Vanderbilt (Cassell v. Vanderbilt Univ., M.D. Tenn., No. 3:16-cv-02086, complaint filed 8/10/16), Johns Hopkins (Kelly v. The Johns Hopkins Univ., D. Md., No. 1:16-cv-02835, complaint filed 8/11/16), and the University of Pennsylvania (Sweda v. Univ. of Penn., E.D. Pa., No. 2:16-cv-04329-GEKP, complaint filed 8/10/16).

That brings the total in this particular wave of litigation to seven, including Duke University, as well as MIT, New York University and Yale. The latter two marked the first time that this type litigation had been filed against 403(b) plans – now they have company.

The newest batch all make the same basic charges, with slight modifications that take into account the number of recordkeepers used (in this group, ranging from five to two, though one (Johns Hopkins) had consolidated from five to two, and another (Vanderbilt) had consolidated to one), and the specific funds included.

Shortcomings Alleged

All take issue that these large plans (the smallest of the three is Vanderbilt’s $3.4 billion, Penn’s is $3.8 billion, and John Hopkins has $4.3 billion in assets, all as of 2014) failed to take advantage of their “jumbo” plan size to negotiate better deals for their plan participants and beneficiaries, including:

  • providing active management solutions, rather than passives,
  • offering duplicative investments “in every major asset class and investment style,”
  • forcing the use of the CREF stock Account and CREF money market account,
  • using mutual funds – and retail mutual funds at that – rather than collective investment funds or separately managed accounts, and
  • flooding their plan menus with a “dizzying” array of funds (ranging from more than 400 to 78 in Penn’s plan) that the suit alleges serve only to intimidate participants into “decision paralysis” while at the same time imposing higher than reasonable fees.

Consolidation Case

As noted above, one of these defendants – the Vanderbilt plan had, in April 2015, consolidated services with a single recordkeeper (Fidelity), and negotiated a $32 per participant recordkeeping fee. However, the suit not only takes issue with their practices prior to that date (they also claim that a “reasonable” recordkeeping fee for that size plan would have been a fixed $1.2 million to $1.3 million (or $30 per participant with an account balance)), they go on to cite participant communications related to those changes as a testament to the plan fiduciaries’ acknowledgement of their shortcomings in administering the plan previously.

The bottom line: Plaintiffs allege that “Instead of using the Plan’s bargaining power to benefit participants and beneficiaries, Defendants allowed unreasonable expenses to be charged to participants  for administration of the Plan and retained high-cost and poor-performing investments compared to available alternatives.”

Will there be more?  Count on it.

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