One of the first excessive fee suits filed against university 403(b) plans has (finally) come to a conclusion with a jury verdict in favor of the fiduciary defendants—with an odd twist (or two).
The suit against Yale University was one of the first to be filed in this area—and by Schlichter Bogard & Denton LLP (now just Schlicther Bogard LLP), the law firm that led the litigation charge against 401(k) plan fees—in August 2016.
As has been the case with most in this genre, it alleged that employees paid excessive recordkeeping fees in addition to selecting and imprudently retaining funds which the plaintiffs claim have historically underperformed for years. Moreover, the complaints challenge the use of multiple recordkeepers, rather than a single recordkeeper—a practice that they claim “… caused plan participants to pay duplicative, excessive, and unreasonable fees for plan recordkeeping services.”
The suit claimed that the defendants here (Yale University, Michael A. Peel, Yale’s Vice President of Human Resources during the class period, and the Retirement Plan Fiduciary Committee) breached their fiduciary duties of prudence and loyalty under ERISA (three counts) by carrying out transactions prohibited by ERISA (three additional counts), and with respect to Yale and Peel, by failing to monitor Committee members. For its part, the defendants moved to dismiss all seven counts for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and for being time-barred.
This suit has been through myriad twists and turns—it has seen roughly half, though not all, of the plaintiffs’ claims set aside along the way to what, in this writer's recollection, is an unprecedented jury trial (those are often requested, but don’t recall one ever being granted).
The Jury’s Decision
The jury was left to consider four counts; count one alleged breaches of fiduciary duty as to recordkeeping and administrative fees. Count two alleged prohibited transactions. Count three concerned investment options and count four involved investment classes open to plan members.
That said, Law360 is reporting that the Yale fiduciary plaintiffs prevailed on all four remaining counts—though the first is a bit of a head-scratcher.
While the jury concluded that the plaintiffs established that the Yale defendants breached their duty of prudence "by allowing unreasonable recordkeeping and administrative fees to be charged" to retirement plan participants—the jury found that no damages resulted. Somewhat oddly, the jury also concluded that Yale proved that a prudent fiduciary "could have made the same decisions as to recordkeeping and administrative fees" that the university ultimately made, according to the report.
However, the jury concurred with the defendants that Yale did not fail to appropriately monitor the investment options provided—and concurred with Yale’s selection on share classes, according to Law360.
The case is Vellali et al. v. Yale University et al., case number 3:16-cv-01345, in the U.S. District Court for the District of Connecticut.
What This Means
It’s a solid victory for the fiduciary defendants here though, as noted above, the jury’s conclusion that there was a breach in allowing unreasonable fees to be charged, but with zero damages from that seems a bit incongruous, to say the least. Similarly, their determination that a prudent fiduciary could have made the same decisions, but still (apparently) concluding that those decisions were imprudent doesn’t quite—well, make sense (to this writer, anyway).
We may get more insights on this in the days ahead—and these apparently contradictory conclusions may simply reflect the nuances of a jury’s deliberations regarding the complexities of ERISA law and its fiduciary obligations—or not.
