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University 403(b) Wins Excessive Fee Suit — Again


An excessive fee suit with a “complicated procedural history” and one that a federal judge says “appears to be a lawsuit in search of a theory” has, once again, culminated in a win for the plan fiduciaries.

This time we’re talking about the suit alleging that the Georgetown University 403(b) plan “retained not one, but three separate recordkeepers” that “charge asset-based fees,” that the defendants (in the words of U.S. District Judge Rosemary M. Collyer “…ignored the abysmal historical investment performance” of the CREF Stock Account and the TIAA Real Estate Account,” that they offered “an overwhelming 300 investment options” and that they “…failed to provide accurate reporting ... in reports filed with the DOL,” and finally that they “approved a loan program that ... violated federal regulations,” and the TIAA Traditional Annuity violates regulations “that all contracts be terminable on reasonably short notice without penalty.” 

‘Complicated History’

Now, as for that complicated history, Judge Amy Berman Jackson outlined it in her recent (March 31) denial of the participant-plaintiffs motion to amend their suit. She was no less harsher than Judge Collyer had been in dismissing the suit back in 2019, commenting that “the case appears to be a lawsuit in search of a theory, and notwithstanding its length, the proposed amended complaint does not add much to the original pleading that was dismissed. Plaintiffs identify ways in which plan management could be different, or even improved, but they have not alleged facts to support a plausible inference that the defendants have failed as fiduciaries.”

Not that it’s been all sunshine and roses for the fiduciary defendants in this case — in 2021, the U.S. Court of Appeals for the District of Columbia Circuit backed the participant-plaintiffs in a 2-1 split that revived the suit that the aforementioned Judge Collyer had tossed. But, having won an opportunity to remake their case — and perhaps sensing what would be the eventual (re)decision here, the participant-plaintiffs had filed for an opportunity to amend their suit (and, FWIW, not for the first time).

As has been the case in other, though not all, cases in this genre, Judge Jackson (Wilcox v. Georgetown Univ., 2023 BL 110645, D.D.C., No. 1:18-cv-00422, 3/31/23) found that the participants filing the suit lacked standing to challenge both the specific Vanguard fund cited (they hadn’t invested in those funds), and the TIAA Traditional Annuity (there was no evidence presented that they had been harmed by the withdrawal limitations, nor had they indicated any intention to act in a way that would have triggered them). 

Compare ‘Ables?’

As for the claims regarding excessive recordkeeping fees, Judge Jackson noted that the comparisons to other, allegedly similar university 403(b) plans (Loyola Marymount, Pepperdine, Purdue, Notre Dame, and Caltech) weren’t enough. She commented, “Although they have supplied examples of defined contribution plans that consolidated the recordkeeping function for all funds with a single provider, they do not include facts comparing the scope and quality of the recordkeeping services being provided; the number and variety of funds or tools and options offered to plan members; the size of the plans, the number of participants in the plans, or the total amount of assets under management; or even the recordkeeping fees paid by the plans.” She went on to note that the new information did not resolve the question as to “whether the single recordkeeper in these plans can perform the recordkeeping function for the TIAA annuities that Georgetown has traditionally offered. Nor do they supply the detail needed to support using $35 as a benchmark,” concluding that the arguments presented remained “conclusory assertions.” She explained that “the fact that plaintiffs have identified universities that operate in a different fashion does not in and of itself support an inference that the decision to consolidate recordkeeping services would be equally beneficial or feasible for Georgetown, much less that Georgetown's approach constitutes mismanagement as opposed to different management.”

That said, Judge Jackson conceded that even though they failed to include “…the facts needed to support [*17] an inference that the plans added as examples are sufficiently similar to give rise to an inference of imprudence on Georgetown's part,” she did so without prejudice — allowing the plaintiffs here an opportunity to do so in an amended complaint on that point.

She did not, however, allow them that same flexibility with regard to claims regarding the use of asset-based versus per-participant fees — noting that she failed to see “…how the renewed allegations concerning asset-based recordkeeping fees differ significantly from those in the original complaint, which was dismissed in its entirety.”

Too Much Choice?

As for the notion that the plan offered too many choices that overwhelmed participants, she referred to the court’s prior dismissal of those claims which had noted that “Plaintiffs provide no evidence that they were confused or overwhelmed by the available investment options or that they were unable to make decisions regarding those options. To the contrary, both were invested in multiple investment options and had access to advisors who provide valuable one-on-one retirement planning services.” She doubled down on that sentiment here, commenting not only that there was (still) no allegation that either plaintiff found himself unable to decide which options to select, “there is no factual support for the inference that a broader array of options is not appropriate for a plan of this size and the diversity of its members, and plaintiffs' snarky speculation that the fund managers simply could not have read that many prospectuses is not enough to fill the gap.”

While the plaintiffs had alleged that the fiduciaries had been deficient in investigating the fees paid to TIAA, pointing to alleged inadequacies of the reporting on the 5500 Form, Judge Jackson saw no connection between those disclosures and the alleged outcomes cited earlier. She wrote, “plaintiffs have not alleged any facts that would support an inference that plaintiffs were harmed by the alleged failure to obtain or closely review the 408b-2 disclosures….” And that despite the allegations that the fiduciaries failed to “properly evaluate and assess the reasonableness of the recordkeepers' charges for recordkeeping and administrative expense, and [d]efendants' failure to evaluate and/or understand the terms and nature of the TIAA and Vanguard investment products” — she saw no sense that “plaintiffs experienced any harm arising out of Georgetown's alleged failure to review TIAA's allegedly incomplete disclosures.”

As for the pricing of the TIAA variable annuities, she commented that “plaintiffs have provided no factual support for their assertion that the structure of the TIAA variable annuities contributed to excess recordkeeping fees, or that a reduction in this expense could have been achieved without changing participants' benefits.” And since “plaintiffs have still not provided facts to support their claims that the variable annuities were imprudent to offer as investment options,” Judge Jackson noted that “adding these allegations would be futile as well.”

What This Means

This case contains a veritable potpourri of the types of charges that have long characterized the excessive fee suits filed against fiduciaries of university 403(b) plans since 2016; that multiple recordkeepers are inherently inefficient and more costly, that the restrictions on annuity investments are problematic, that a large number of investment choices serve only to confuse participants (and obfuscate the fee issues), and that the challenged plan is paying more for recordkeeping that other, allegedly comparably sized plans (in terms of assets and/or participants). 

Note again that this court insisted that the participant-plaintiffs have investment in, and suffer direct damages from, in order to represent the class. That still seems a minority view across federal court districts, but this one is not an outlier in that regard.

That said, the rebuff to those charges here (as it was with the district court the first time around) was pretty sharp — echoing what has been a trend among the districts of late, with courts looking for more than mere allegations based on little more than rough comparisons based on what are said to be comparable plans. While the appellate court gave them another shot — well, they didn’t do much to remedy their claims, at least not in this court’s view.