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Duke Slapped with Second Suit

The law firm of Schlichter, Bogard & Denton has added another claim based on a revenue-sharing arrangement it uncovered during discovery related to an excessive fee suit.

The suit, the second filed against plan fiduciaries at Duke University on behalf of plaintiffs Kathi Lucas, Jorge Lopez and Keith A. Feather by the Schlichter law firm, claims that by establishing expense reimbursement accounts and revenue credit programs that delivered revenue sharing to Duke (in the form of reimbursement of employee salaries and fringe benefits and other expenses instead of delivering revenue sharing to the plan and by paying itself from those accounts), Duke acted “on behalf of a party whose interests were adverse to the interests of the Plan or the interests of its participants or beneficiaries…” – namely, itself, the suit reminds us.

The original suitone of the first in the category of university 403(b) plans – was filed in August 2016, and charged the defendants with a series of fiduciary breaches, including providing “…a dizzying array of duplicative funds in the same investment style,” relying on the services of four recordkeepers, carrying actively managed funds on its plan menu when passives were available, having recordkeeping charges that were asset-based, rather than per participant, and not using its status as a “jumbo” plan to negotiate a better deal for plan participants, among other things.

The Duke plan was, as most of the plaintiffs in such actions have been, a large ($4.8 billion as of Dec. 31, 2015, with more than 40,000 participants with account balances in the plan.

Second ‘Act’

This second action (Lucas v. Duke Univ., M.D.N.C., No. 1:18-cv-00722, complaint filed 8/20/18), builds on the allegations related to excessive fees and multiple recordkeepers in the initial suit, noting that from 2011 to January 2019, Duke engaged four recordkeepers for the plan and allowed each of those providers to put their own proprietary investment funds in the plan – resulting in a total of more than 400 investment options in the plan.

As for the timing of this filing, the current action explains that the plaintiffs hadn’t been aware of this “scheme” until discovery related to the first action in the first half of 2018.

The newest suit notes that Duke was informed “at least as early as 2010 that the Plan’s investment options were providing revenue sharing that overpaid for the Plan’s recordkeeping services provided by TIAA, Fidelity, and VALIC by more than $3.5 million per year.” Moreover, the plaintiffs allege that, rather than recovering excess revenue sharing for the plan, “…Duke arranged with Fidelity, TIAA-CREF, and VALIC for those companies to pay Plan expenses and to reimburse Duke for its own expenses putatively in administering the Plan, including paying salaries and fringe benefits of employees in Duke’s Human Resources department and other expenses Duke previously had been paying itself.” How much, you ask? Well, the suit notes that Duke first established this arrangement in 2011, arranging for:


  • Fidelity to make available $750,000 (the suit says that in 2013, Fidelity increased this to $1.2 million);

  • TIAA-CREF to make available $630,000; and

  • VALIC to make available $80,000 for payment of putative Plan expenses.


These amounts were made available for 12 months and expired if they were not used to pay plan expenses.

Revenue ‘Sharing’

Duke first started paying itself from these Plan assets in 2012, and, according to the suit, did not arrange for returning excess revenue sharing back to the plan for allocation to participant accounts until 2014, when it arranged revenue credits programs – but then only with Fidelity and TIAA (not VALIC).

Under those programs, the Duke plan was to receive only the amounts that remained after Duke paid itself for the salaries and fringe benefits of its employees and other expenses that it incurred. And, according to the suit, despite establishing these revenue credit programs in 2014, Duke did not arrange for the transfer of excess revenue sharing to participant accounts until September 2016, and did not cease paying itself from the plan’s excess revenue sharing until August 2016. Why then? Well, the plaintiffs say it was “after it discovered that Plaintiffs’ attorneys were investigating fiduciary breaches in the plan.” Indeed, the plaintiffs filed their initial suit on Aug. 10, 2016, charging the plan fiduciaries with breaching their duties by causing the plan “to incur excessive recordkeeping administrative expenses and excessive investment management fees, and in causing the Plan to provide imprudent investment options.”

The plaintiffs allege that Duke took for itself out of these plan assets more than $1,500,000 in putative reimbursement of employee salaries and fringe benefits from 2012 through 2016, and go on to claim that Duke decided not to reduce the number of recordkeepers in the plan, “to negotiate reasonable and lower recordkeeping fees for the Plan, or to remove or reduce high-fee mutual funds and annuities from the Plan that paid revenue sharing because it sought to maintain enough excess revenue sharing payments to pay itself for employee salaries and fringe benefits and other expenses.”

The plaintiffs note that Duke “did not enter into any contract or formal arrangement, much less a reasonable contract or arrangement, for reimbursement of proper Plan expenses, but instead just paid itself from Plan assets under this scheme when it had a clear conflict of interest with the Plan and Plan participants. Duke did not hire an independent fiduciary to determine whether it was in the interest of the participants to engage in this scheme or whether the services that Duke employees performed were necessary for the operation of the Plan, whether the amounts charged for those services were reasonable, and whether Duke was being reimbursed only its direct expenses incurred in providing necessary services to the Plan.”

If there’s any doubt as to the impact that the firm of Schlichter, Bogard & Denton is having, one need only review the six pages of the 28-page filing that outline the firm’s CV in these cases.

The initial suit is scheduled for trial in July 2019.

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