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Fiduciaries Fall Short with En Banc Bid

403 (b) Plans


A key university 403(b) suit remains alive, as the fiduciary defendants lost their bid to have a rehearing of the case rejected. 

The case – one of the first of the university 403(b) suits filed in 2016 – and 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, had alleged that the University of Pennsylvania defendants breached their fiduciary duty by “locking in” plan investment options into two investment companies, that the administrative services and fees were unreasonably high due to the defendants’ failure to seek competitive bids to decrease administrative costs, and that the fiduciaries charged unnecessary fees while the portfolio underperformed.

Summary, Judgment

In September 2017, the district court ruled in favor of the University of Pennsylvania defendants, dismissing the suit. However, on appeal in May 2019, U.S. Court of Appeals for the 3rd Circuit revived the employees’ proposed class action, partially reversing (by a 2-1 vote) the 2017 dismissal of the suit. 

They did so by considering whether the plaintiff in this case (Sweda) “…stated a claim that should survive termination at the earliest stage in litigation,” noting that when a court dismisses a complaint without trial (as the district court did in this case), “it deprives a plaintiff of the benefit of the court’s adjudication of the merits of its claim before the court considers any evidence,” going on to explain that they considered this appeal construing the complaint “in the light most favorable to the plaintiff.”

En Banc Rebuffed

The University of Pennsylvania defendants asked for the full court (“en banc”) to reconsider the ruling, but on July 19 the U.S. Court of Appeals for the 3rd Circuit denied its petition for rehearing or rehearing. The short response to the motion noted that “having been submitted to the judges who participated in the decision of this Court and to all the other available circuit judges of the circuit in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the judges of the circuit in regular service not having voted for rehearing, the petition for rehearing by the panel and the Court en banc, is denied.” However, the response acknowledged that Judge Jordan voted for rehearing.

What This Means 

For the moment, anyway, it’s status quo – which in this case means that the issues raised by plaintiffs remain unresolved. Remember that while the appellate court kept the plaintiffs’ case alive, they did so only because they felt the issues presented deserved a full adjudication, rather than the dismissal by summary judgment that had been the ruling of the district court.

The suit was not only one of the first of the university 403(b) excessive fee suits to be filed, the district court decision, in favor of the fiduciary defendants for the University of Pennsylvania Matching Plan, had been cited in a number of these cases, including those that had been settled. While at least 20 universities have been sued over the fees and investment options in their retirement plans since 2016, settlements have been struck with Brown UniversityVanderbilt University and the University of Chicago, though St. Louis-based Washington UniversityNew York University and Northwestern University have prevailed in making their cases in court, following the University of Pennsylvania decision.

Regardless, the (eventual) outcome of this case is one on which to keep an eye.