Vanderbilt University is the latest school to lose an early round in litigation challenging the fees and investment options in its retirement plan.
A federal judge on Jan. 5 largely refused to dismiss a proposed class action accusing the school of running a retirement plan with excessive administrative fees, too many service providers, and high-fee investment options. The school nevertheless succeeded in having portions of the lawsuit dismissed, including claims that the school acted disloyally and confused workers by giving them too many investment options.
The Vanderbilt retirement plan, which covers more than 40,000 people and has about $3.4 billion in assets, is one of more than a dozen college retirement plans to be hit with proposed class actions in recent years. So far, the University of Pennsylvania is the only school to defeat one of these cases outright, with judges allowing similar challenges to proceed against Cornell, Columbia, Duke, Emory, New York University, Johns Hopkins, Princeton, and the University of Chicago.
The lawsuits are noteworthy for bringing the novel claim that a retirement plan fiduciary can breach its duties by offering workers too many investment options. The workers say overly large investment lineups—the Vanderbilt plan allegedly had more than 300—confuse workers and keep fees high.
Chief Judge Waverly D. Crenshaw Jr. of the U.S. District Court for the Middle District of Tennessee rejected this theory against Vanderbilt, as have most of the other judges to have considered such claims against college retirement plans.
“Having too many options does not hurt Plan participants,” Crenshaw wrote in this case. “Instead, it provides them with greater opportunities to choose the investments they prefer.”
Duke is the only school so far that has failed to get this claim dismissed. The judge hearing that case didn’t include extensive reasoning in her opinion.
The judge allowed many of the lawsuit’s key claims against Vanderbilt to move forward, including claims that the school should have gotten competitive bids for record keepers or consolidated the plan’s record-keeping services to a single company. The workers are also moving forward with claims that the plan offered high-fee and poorly performing investment options and didn’t have a good process for deciding whether to remove bad investments from the plan.
However, the judge dismissed claims that Vanderbilt acted disloyally and engaged in transactions prohibited by the Employee Retirement Income Security Act. The disloyalty claim failed, the judge said, because there was no indication that Vanderbilt made any of the challenged plan decisions in an effort to benefit itself or a third party over the workers who invest in the plan.
Schlichter Bogard & Denton LLP, Hawkins Hogan PLC, and Farmer Purcell White & Lassiter PLLC represent the Vanderbilt employees. Morgan Lewis & Bockius and Bass Berry & Sims represent Vanderbilt.
The case against Vanderbilt is Cassell v. Vanderbilt Univ., 2018 BL 4604, M.D. Tenn., No. 3:16-cv-02086, 1/5/18.
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