New York University defeated a class action accusing it of violating federal benefits law by allowing imprudent, high fee investments in its employees’ retirement plans.
NYU is the first college to fight these claims at trial and have a federal court rule in its favor.
The ruling, issued July 31 by a federal judge in New York, is a defeat for more than 20,000 current and former NYU employees who won class certification in a lawsuit challenging the investment funds and fees associated with the school’s retirement plans. The case went to trial in April for eight days.
The workers alleged that NYU’s imprudence resulted in losses totaling more than $358 million. The plans had over $4.6 billion in combined assets.
While there were deficiencies in the process to select record-keeping vendors and certain investments, the workers didn’t show that NYU acted imprudently or that the plans suffered losses as a result, Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York, held July 31.
NYU is pleased with the outcome, John Beckman, NYU spokesman, told Bloomberg Law July 31 via email.
Forrest’s ruling will be of interest to other colleges also facing lawsuits challenging how they managed their retirement plans, including Columbia, Emory, Johns Hopkins, and Princeton. In the past year, the University of Pennsylvania and Northwestern scored early victories when judges granted their dismissal requests. The University of Chicago settled similar claims for $6.5 million earlier this year.
Processes OKd by Court
The NYU workers took to trial claims that the university imprudently managed the selection and monitoring of record-keeping vendors resulting in excessive fees, and that it failed to remove two allegedly imprudent investment funds.
Forrest highlighted the “lack of in-depth knowledge concerning the financial aspects of managing a multi-billion dollar pension” plan displayed by one of NYU’s plan committee members whose role was to manage the plans. Another committee member also appeared to be “similarly unfamiliar” with basic concepts relating to the plans, Forrest said.
While Forrest found the “level of involvement and seriousness” with which members treated their fiduciary duties “troubling,” she didn’t conclude that this rose to a level of failure to fulfill their obligations under the Employee Retirement Income Security Act.
NYU prudently managed its record-keepers, Forrest said. The university ran prudent request for proposal processes, was able to obtain lower fees for the plan when consolidation was impractical, and it consolidated services for one of the plans, she said.
The evidence also didn’t support the workers’ claim that the university was imprudent by failing to remove two funds that allegedly underperformed, Forrest said. The university closely monitored the performance of the investment alternatives offered in the plans, Forrest said.
Counsel for the workers didn’t immediately respond to Bloomberg Law’s request for comment.
Schlichter Bogard & Denton LLP represents the workers. DLA Piper US LLP represents NYU.
The case is Sacerdote v. N.Y. Univ., S.D.N.Y., No. 1:16-cv-06284-KBF, judgment 7/31/18.