The devil is often in the details in litigation – but now the “devils” find themselves in the defendant’s chair.
In this case we’re talking about the (Blue) Devils – specifically, Duke University, which has, in the most recent class action filing by the law firm of Schlichter, Bogard & Denton, been charged with a series of fiduciary breaches, including providing “…a dizzying array of duplicative funds in the same investment style,” relying on the services of four recordkeepers, carrying actively managed funds on its plan menu when passives were available, having recordkeeping charges that were asset-based, rather than per participant, and not using its status as a “jumbo” plan to negotiate a better deal for plan participants, among other things.
The St. Louis-based law firm, which has been at the forefront of these so-called “excessive fee” lawsuits for more than a decade now, recently filed comparable actions against MIT, New York University, and Yale. The latter two marked the first time that this type litigation had been filed against 403(b) plans.
The Duke plan was, as most of the plaintiffs in such actions have been, a large ($4.7 billion as of Dec. 31, 2014, with nearly 38,000 participants with account balances) plan.
The suit also claims that the plan fiduciaries:
- Provided so many of funds (more than 400) that it deprived the plan of its bargaining power, and led to “decision paralysis” for participants.
- Allowed a provider (TIAA-CREF) to impose “restrictive provisions on the specific annuities that must be provided in the Plan,” specifically the CREF Stock Account “…in order to drive revenue to TIAA-CREF,” a decision that the plaintiffs claim cost plan participants in excess of $100 million of their retirement savings.
- Paid at least $6.4 to $10.4 million (or approximately $280 per participant with an account balance) per year from 2010 to 2014, over 830% higher than what they deemed a reasonable fee for these services (a fixed amount between $700,000 and $1.1 million (approximately $30 per participant with an account balance).
- Failed to conduct a competitive bidding process for the plan’s recordkeeping services.
- Selected and retained investment options for the plan that “…consistently and historically underperformed their benchmarks and charged excessive investment management fees.”
Among the more than 400 fund options, the suit notes that 40 were TIAA-CREF options, almost 100 were Vanguard options, over 200 were Fidelity options, and almost 100 were VALIC options.
The suit claims that, as of Dec. 31, 2014, of the plan’s $4.7 billion in net assets:
- TIAA-CREF funds accounted for $1.3 billion,
- Vanguard funds accounted for $887 million,
- Fidelity funds accounted for $1.6 billion, and
- VALIC funds accounted for $903 million.
