What’s worse than being slapped with an excessive fee lawsuit by your own participants? Being slapped with a second excessive fee suit by another participant, of course.
That’s what just happened to the $3.8 billion Washington University Retirement Savings Plan, sued for the second time in less than a month by another of its 24,000 participants. The latest filing charges that the plan fiduciaries “…utterly abdicated their fiduciary duties to act prudently and loyally,” and instead “turned the Plan over to the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund and Vanguard Group, Inc.”, which in turn the plaintiffs alleged “…poured the Plan’s funds into scores of duplicative, expensive and underperforming TIAA and Vanguard propriety products.”
Washington University was sued earlier this month in the U.S. District Court for the Eastern District of Missouri. The latest suit, filed in the same court (Sims-King v. Wash. Univ. in St. Louis, E.D. Mo., No. 4:17-cv-01785, complaint filed 6/23/17), was brought by a different participant (Marla Aliece Sims-King), represented by different law firms (Carey, Danis & Lowe and Chimicles & Tikellis LLP), and while the language describing the alleged missteps was somewhat different, the basic issues were consistent not only with the other suit against the St. Louis-based university plan, but with others that have been filed in this area over the past several months.
Damaged ‘Goods’
In addition to reaping the benefits of “multiple layers of fees,” this most recent suit claims that participants were damaged because, among other things:
- They paid higher recordkeeping fees than necessary (because the fees were assessed based on plan asset values, rather than a per participant basis).
- They paid the higher “retail” investment class fees paid by small investors (even though, based on the size of the plan, lower-fee class versions of the identical fund, with the same fund manager, were available of large investors like the plan).
- They were “burdened with an excessive number of duplicative funds, including poorly-performing funds, ‘bundled’ into the Plan by TIAA and Vanguard mandates, which resulted in higher fees and/or poorer investment returns, thereby enriching TIAA and Vanguard at the expense of Plan participants.”
The plaintiffs alleged in their suit that “…revenue sharing provides an incentive for TIAA and Vanguard to recommend higher cost funds, including in-house, proprietary funds.”
‘Abdication’ Claims
By way of offering proof of the negligence, the suit alleges that “the lack of any material changes from the package over many years evidences a lack of independent due deliberation by the Plan fiduciaries,” and “abdication” that they said “resulted in the determination of the package by conflicted service providers.”
As has been the case in other of the university plan excessive fee lawsuits, reference was made to certain TIAA products that were required to be offered, and that could not be removed without penalty to the plan and its participants, and the sheer number of investment options (119, 36 of which were TIAA options, and 83 that belonged to Vanguard).
The plaintiffs also took issue with a 2016 Plan and Investment Notice published on the Washington University website that included disclosures by TIAA of fees that the plaintiffs say “deviate” from the disclosed fees in the underlying prospectuses for the funds, discrepancies the plaintiffs say are “in several instances, beyond the point of a possible rounding error.” They go further to say that those “deviations in expense reporting” raise two possibilities from their perspective: either “TIAA is a reckless recordkeeper and Defendants permit this conduct without correction or rebuke; or (2) TIAA is adding additional points of fees for its own account and Defendants permit this conduct without correction or rebuke.” Yep, and they note that “either scenario is a blatant violation of Defendants’ fiduciary duties.”
The suit picks up on themes commonly found in such litigation: high fees do not mean better performance; passive outperforms active; recordkeeping costs are driven by participant count, not assets, and thus asset-based fees are inappropriate (and imprudent); and – a common theme in 403(b) suits – single recordkeeper designs are better than multiple recordkeepers “because a multi-recordkeeper platform is inefficient and squanders the ability to leverage a plan’s bargaining power are more costly than single platforms.” The suit does acknowledge that on June 7, 2016, the plan consolidated recordkeeping and administrative services with a single recordkeeper (TIAA).
In the case of the latter, the suit took a new tactic from other university plan litigations, outlining case studies of several university plans, including Loyola Marymount, Pepperdine, Purdue, CalTech and Notre Dame – all of which had moved from multiple recordkeeper platforms.
Other Suits
Over the past year, more than a dozen university plans have been hit with lawsuits, including the University of Chicago; Princeton; Yale, NYU, Vanderbilt, Columbia, Northwestern, Cornell and USC. In recent weeks, others have been sued for allegedly allowing their retirement plans to charge excessive administrative fees and retaining too many investment options. Two of those cases – against Emory and Duke University – have gotten a hearing on motions to dismiss – hearings that largely rejected those motions.
