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Another University ‘Schooled’ on Excessive Fees

Another institution of higher learning – this one having been selected by the Commission on Presidential Debates to host more presidential and vice-presidential debates than any other institution in history – now finds itself sued for the practices of its 403(b) plan.

The suit (Davis v. Wash. Univ. in St. Louis, E.D. Mo., No. 4:17-cv-01641, complaint filed 6/8/17) involves the $3.8 billion Washington University Retirement Savings Plan, and treads familiar ground. Plaintiffs Latasha Davis and Jennifer Elliott, on behalf of the plan’s more than 24,000 participants and beneficiaries, allege that rather than “leveraging the Plan’s substantial bargaining power to benefit participants and beneficiaries,” the plan fiduciaries:


  • Caused the plan to pay unreasonable and excessive fees for investment and administrative services.

  • Selected and retained investment options for the plan that historically and consistently underperformed their benchmarks and charged excessive investment management fees.

  • Paid an asset-based fee for administrative services “that continued to increase with the increase in the value of a participant’s account even though no additional services were being provided.”

  • Selected as the plan’s principal capital preservation fund “the TIAA Traditional Annuity, that prohibited participants from re-directing their investment in the Traditional Annuity into other investment choices during employment except in ten annual installments, effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives changed.”


In the lawsuit, filed June 8 in the U.S. District Court for the Eastern District of Missouri, the plaintiffs allege that the university’s savings plan “amply qualifies” as a “Mega” plan, and that “prudent fiduciaries of similarly sized defined contribution plans use a single recordkeeper rather than hiring multiple recordkeepers and custodians or trustees,” and yet this plan, as other 403(b) university plans have done, has engaged more than one (two in this case; the aforementioned TIAA and Vanguard). Moreover, they assert that “based on information currently available to Plaintiffs regarding the Plan’s features, the nature of the administrative services provided by the Plan’s recordkeepers, the Plan’s participant level, and the recordkeeping market” that “a reasonable recordkeeping fee for the Plan would have been a fixed amount between $500,000 and $850,000 (approximately $35 per participant with an account balance),” but that their assessment indicates that “the Plan paid at least hundreds of dollars per participant per year from 2010 to 2015 for recordkeeping; much higher than a reasonable fee for these services, resulting in millions of dollars in excessive recordkeeping fees each year.”

“One could reasonably infer from these circumstances alone that the Defendant’s fiduciary decision-making process was either flawed or badly executed,” the plaintiffs continue, “but there is substantial additional evidence of a flawed process, such as (i) the inclusion of a dizzying array of thirty-five TIAA-CREF and some 83 Vanguard investment options; and (ii) approval of a TIAA loan program that required excessive collateral as security for repayment of the loan, charged grossly excessive fees for administration of the loan, and violated U.S. Department of Labor (“DOL”) rules for participant loan programs.” They claim that 41 of the 83 Vanguard funds available are retail class funds, and that of the other 42 available Vanguard funds offered, “…either Admiral shares are offered with substantially lower fees or the funds offer only one share class.”

“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 plaintiffs note. “If a selection of share class was intended to offset the cost of recordkeeping, it was an exceedingly poor decision, considering the amounts being collected by TIAA for recordkeeping services.”

Without citation, plaintiffs allege that “to ensure that plan administrative and recordkeeping expenses are and remain reasonable for the services provided, prudent fiduciaries of large defined contribution plans solicit competitive bids for the plan’s recordkeeping and administrative services at regular intervals of approximately five years.”

Finally, the plaintiffs claim to have found a discrepancy between the expense ratios in a “significant sample of the available Vanguard funds with their corresponding expense ratios as reported in the respective fund’s prospectus and as reported by TIAA in a recent participant fee disclosure” of from one to four basis points. “This rather extensive reporting error demonstrates the cavalier attitude with which the University approached its fiduciary duty to give participants accurate information about plan investments,” the plaintiffs claim.

Latest in a Long Line

The litigation is just one of more than a dozen filed beginning last August, when St. Louis-based Schlichter Bogard & Denton LLP filed proposed class actions, a list that has expanded to include Cornell University, Northwestern University, Columbia University and the University of Southern California.

While Washington University is in the Schlichter firm’s backyard, the employees in this suit are represented by Edgar Law Firm LLC, as well as Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger & Montague PC. The latter two firms have filed similar litigation against the University of Chicago and Princeton.

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