Skip to main content

You are here


Another University Prevails in 403(b) Suit

Four universities have now won their case in court against excessive fee claims.

The most recent victor is St. Louis-based Washington University in a suit involving the $3.8 billion Washington University Retirement Savings Plan. The suit, brought on behalf of the plan’s more than 24,000 participants by plaintiffs Latasha Davis and Jennifer Elliott, treads familiar ground.

Charge ‘Card’

The suit alleges that that the Washington University defendants violated their duties to act prudently and loyally in such ways that reduced the Plan participants’ retirement savings, specifically by (i) causing the Plan to overpay for recordkeeping and administrative services; (ii) causing the Plan to pay higher fees by offering "retail" investment class shares rather than equally available, lower-cost "institutional" class shares in the same funds, (iii) including duplicative and poorly performing funds "bundled" into the Plan by TIAA and Vanguard mandates, resulting in higher fees and inferior investment returns; (iv) failing to take action to address persistent underperformance of certain investment options; and (v) approving a loan program that was prohibited by ERISA.

The plaintiffs also alleged that there should have been “some sort of cap” to the recordkeeper fees, and that by failing to utilize a single recordkeeper and not soliciting bids for its recordkeeping services, the plan paid higher costs and duplicative, excessive fees.

However, here (Davis v. Wash. Univ. in St. Louis, E.D. Mo., No. 4:17-cv-01641, order granting defendants’ motion to dismiss 9/28/18), Judge Ronnie L. White of the U.S. District Court for the Eastern District of Missouri held that the plaintiffs failed to allege a breach of fiduciary duties, since the “Consolidated Complaint pleads no facts sufficient to raise a plausible inference that Defendants took any of the actions alleged for the purpose of benefitting themselves or a third-party entity with connections to Wash U, at the expense of the Plan participants, or that they acted under any actual or perceived conflict of interest in administering the Plan.”

Instead, he noted, “plaintiffs start with the false premise that just because the Plan’s fees could have been lower that necessarily Defendants breached their fiduciary duties.” He went on to explain that the plaintiffs have failed to allege that the process of choosing the investment options was flawed, “other than a mere inference of fiduciary wrongdoing,” and these allegations were “insufficient.” “Even if there is a fiduciary duty to choose a plan that offers an acceptable array of investment vehicles with reasonable fees, no rational trier of fact could find Wash U failed to satisfy that duty on the basis of the facts alleged in this Complaint,” he wrote.

As for the allegations about cheaper funds, Judge White said that “the diverse selection of funds available to Plan participants negates any claim that Defendants breached their duties of prudence simply because cheaper funds were available.” Moreover, Judge White observed the plan’s all-in fees (ranging from 0.04% to 0.85%) were “better than those approved in cases previously approved by courts.”

Judge White also denied all claims based upon the plan’s recordkeepers or recordkeeping. “Courts have disallowed claims premised on a Plan's choice to allow recordkeepers to be paid on an asset-based basis instead of on a flat fee basis,” he explained. He also held (citing Sweda v. Univ. of Penn., E.D. Pa., No. 2:16-cv-04329-GEKP, 9/21/17 ) that the plaintiffs “provide no basis for removing the discretion afforded to Plan administrators and mandating recordkeeping fee caps or single recordkeepers”(that said, in a footnote it was noted that the defendants had consolidated to a single recordkeeper in June 2016).

As for the CREF Stock Account and CREF Money Market Account, Judge White said that, based on the evidence presented, those funds “were not ‘locked in’ to the Plan and could not be removed regardless of performance. Rather, these two options were merely ‘bundled’ with the TIAA Traditional Annuity, and that ‘bundle’ could be removed,” he wrote, going on to conclude that the allegations regarding the “purported locking in of any TIAA investment options does not state a claim for breach of fiduciary duty as a matter of law.” And as for the returns, “plaintiffs have not alleged that the Traditional Annuity performed poorly, provided insufficient return, was too expensive or was otherwise an unreasonable or unsound option for a fiduciary to offer to plan participants who valued a guaranteed higher rate at the expense of liquidity,” and thus Judge White determined that “this fails to state a claim as a matter of law.”

Regarding the loan program, Judge White noted that the plaintiffs alleged a prohibited transaction because TIAA kept all the earnings on the investments, less an amount credited to participants as interest on posted collateral, and thus that the transfer of plan assets to TIAA violated ERISA because it benefitted a party in interest. That said, he noted that this complaint also failed to “allege any factual allegations articulating a plausible violation of ERISA, and the Court grants Defendants’ Motion to Dismiss on this basis.

“Holding collateral in the Traditional Annuity provides a mechanism to ensure that the participant loan is ‘adequately secured’ and does not constitute a transfer to TIAA,” he wrote. “Plaintiffs have not shown how this securitization violates ERISA or is an imprudent act by Defendants.”

And with that, Judge White granted the Washington University defendants’ motion to dismiss for failure to state a claim.

With the ruling, Washington University (which has been sued by other plaintiffs as well) joins New York University, the University of Pennsylvania and Northwestern in winning their case in court.