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Data Sharing Claim Added to 403(b) Suit

The plaintiffs in a 403(b) university plan excessive fee lawsuit have been allowed to add another claim to that suit: that fiduciaries failed to protect plan assets by allowing third parties to market services to participants.

Federal Magistrate Judge Joe Brown of the U.S. District Court for the Middle District of Tennessee partially granted the plaintiff’s request, but sided with the university defendants in not allowing that addition to also bring back in claims previously dismissed by the court (Cassell v. Vanderbilt Univ., M.D. Tenn., No. 3:16-cv-02086, order granting in part plaintiff’s motion to amend complaint 6/1/18).

Case Background

As has been the case with other of these 403(b) university excessive fee suits, fiduciaries of Vanderbilt’s $3.4 billion (as of 2014) plan were alleged to have not taken advantage of their “jumbo” plan size to negotiate better deals for their plan participants and beneficiaries, that they opted for active management solutions when (cheaper) passive alternatives were available, that they used mutual funds – and retail mutual funds at that – rather than collective investment funds or separately managed accounts, and that they flooded their plan with a “dizzying” array of fund choices that not only stymied participant decision-making, but resulted in higher-than-reasonable fees.

The Vanderbilt plan had, in April 2015, consolidated services with a single recordkeeper (Fidelity), and negotiated a $32 per participant recordkeeping fee. However, the suit not only takes issue with their practices prior to that date (they also claim that a “reasonable” recordkeeping fee for that size plan would have been a fixed $1.2 million to $1.3 million (or $30 per participant with an account balance)), they go on to cite participant communications related to those changes as a testament to the plan fiduciaries’ acknowledgement of their shortcomings in administering the plan previously.

Amended Arguments

Plaintiffs here – they were represented by Schlichter Bogard & Denton LLP, Hawkins Hogan PLC, and Farmer Purcell White & Lassiter PLLC – had argued that this amendment “would not prejudice—let alone significantly prejudice” the defendants in this case, that the claim was “narrowly tailored and arises from the same set of operative facts…”, concerns the same subject matter as the amended complaint, and “arises from conduct that is closely related to the conduct that has already been alleged.” Moreover, they had argued that things were an early stage of discovery, that “no depositions have been taken, the document production and review process is ongoing and has not been substantially completed, and trial is not scheduled to take place until November 2019,” and that “under these circumstances, no prejudice to any party would result from an amendment.”

In sum, they argued that the amendment should be allowed because the request was made “…before deposition discovery has commenced, nearly a year before discovery closes, before the parties have substantially completed the document production and review process, and approximately 18 months before trial….” And because it “arises from recently identified facts.”

Data ‘Breach’?

In another case, in a different venue, another Schlichter-represented plaintiff recently attempted – unsuccessfully as it turns out – to add a similar claim, that the information about participants constitutes a plan asset and that defendants breached their fiduciary duties by: (1) not preventing TIAA from using that information to market products to plaintiffs; and (2) engaging in a prohibited transaction in so doing.

That case – involving Northwestern University’s 403(b) plan (plaintiffs were also represented by Schlichter Bogard & Denton LLP) – was decided in favor of the plan fiduciaries. It was the second of the 403(b) university excessive fee suits to go to trial, and the second in which the university defendants prevailed. The other was brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources, though it is currently under appeal. More recently, the University of Chicago entered into a class action settlement for a $6.5 million cash payment and changes to the university’s $3 billion plan.

Having allowed this additional claim to be added in the Vanderbilt case, it will be interesting to see how this court rules on this issue – and others.