4 More University 403(b) Plans Sued for Excessive Fees

The law firm of Schlichter, Bogard & Denton has filed four more lawsuits against multibillion-dollar plans that have allegedly “allowed unreasonable expenses to be charged to participants for administration of the plans, and retained investments with excessive costs and poor performance compared to available alternatives.”

The latest round involved the 403(b) plans at Cornell University, Northwestern University, Columbia University and the University of Southern California.

The most recent series alleges many of the fiduciary breaches claimed in the previous suits – the use of active versus passive management, retail rather than institutional mutual funds, multiple recordkeepers, revenue-sharing that funds asset-based recordkeeping fees, rather than per-participant, a “dizzying array” of fund choices that overlap in style, confusing participants and obscuring fees, not to mention other fund options that are alleged to be both more expensive and overly restrictive.

Two of the four have, in recent months, winnowed both their recordkeepers and fund menus – though their communications to participants about the benefits of those changes has been included as an admission that their previous plan designs were inappropriate.

Some additional details:

Columbia University

Two 403(b) plans: the Retirement Plan for Officers of Columbia University and the Columbia University Voluntary Retirement Savings Plan. As of Dec. 31, 2014, the Officers Plan had over $2.8 billion in net assets, while the VRSP had over $1.8 billion in net assets, with 27,309 participants with account balances in the former, and approximately 20,000 of those participants also had an account balance in the VRSP.

The plan offered 116 options, with two recordkeepers (TIAA-CREF and Vanguard). “By failing to monitor and control the compensation paid to TIAA-CREF and Vanguard for recordkeeping and administrative services, Defendants caused the Plans to pay unreasonable expenses for administration, resulting in Plan losses of at least $15–$20 million.”

This was the second suit filed against Columbia’s plans in as many days; the other suit, filed by Sanford Heisler, LLP, seemed to lean heavily on the claims and language employed in other Schlichter, Bogard & Denton 403(b) filings.

Cornell University

As of Dec. 31, 2014, the Retirement Plan had $1.9 billion in net assets and 18,470 participants with account balances, and as of Dec. 31, 2014, the TDA Plan had $1.2 billion in net assets and 10,982 participants with account balances.

As of Dec. 31, 2014, defendants offered a total of 299 investment options to Retirement Plan participants, and a total of 301 investment options to TDA Plan participants.

USC

Two underlying plans: the University of Southern California Defined Contribution Retirement Plan and the University of Southern California Tax-Deferred Annuity Plan. As of Dec. 31, 2014, the DC Plan held $2.19 billion in assets and had 28,423 participants with account balances, while as of Dec. 31, 2014, the TDA Plan held $2.25 billion in assets and had 29,758 participants with account balances.

The plans’ investments options were offered by four separate recordkeepers to the plans: TIAA-CREF, Vanguard, Fidelity and Prudential. With the exception of approximately 14 investment options, all investments were proprietary investments of these four recordkeepers.

Prior to March 2016, the plans offered more than 340 investment options, which included mutual funds, insurance pooled separate accounts, and insurance company fixed and variable annuity products. In March 2016, the USC plans made some significant changes, removing one of the recordkeepers for future contributions (Prudential), eliminating hundreds of mutual funds (cutting the menu to 34 funds), removing certain fixed and variable annuity investment options, and freezing contributions to certain other fixed and variable annuity investment options. That said, the complaint notes that the defendants “continue to include high-priced investment options in the Plans, retain three recordkeepers, and continue to allow excessive recordkeeping fees to be charged to the Plans.”

Moreover, the complaint notes that as part of the communications about the changes to participants, “Defendants expressly acknowledged that the Plans’ multiple recordkeeper structure and hundreds of investment options caused the Plans to pay unreasonable recordkeeping and investment fees.”

The complaint calls $30 per participant reasonable for recordkeeping “while each Plan paid up to $130 per participant per year from 2010 to 2014, which is well over 300% higher than a reasonable fee for these services.”

Northwestern University

As of Dec. 31, 2015, the Retirement Plan had $2.34 billion in net assets and 21,622 participants with account balances, while at the same point in time the Voluntary Savings Plan had $529.8 million in net assets and 12,293 participants with account balances.

As of Dec. 31, 2015, defendants offered a total of 242 investment options to Retirement Plan participants, and 187 investment options to Voluntary Savings Plan participants, split between TIAA-CREF investments and options from Fidelity.

As with the USC plan, the complaint acknowledges that in 2016, Northwestern “eliminated hundreds of mutual funds provided to Plan participants and selected a tiered structure comprised of a limited core set of 32 investment options,” including five tiers – one a TDF tier, the second five index funds, the third consists of 26 actively managed mutual funds and insurance separate account, and a SDBA. However, the suit notes that Northwestern continued to contract with two separate recordkeepers (TIAA-CREF and Fidelity) for the retirement plan and only consolidated the Voluntary Savings Plan to one recordkeeper (TIAA-CREF) in late 2012.

And with these, we now have a baker’s dozen of the university retirement plan suits (12 by the Schlichter, Bogard & Denton firm alone).

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