Schlichter Bogard & Denton LLP, the law firm that led the litigation charge against 401(k) plan fees, filed three new ERISA class actions against Yale University, New York University and Massachusetts Institute of Technology.
The lawsuits, filed Aug. 9 in different federal courts, accuse the universities of charging excessive record-keeping and administrative fees in connection with their retirement plans for faculty members. The complaints raise a novel challenge to the way the retirement plans are managed—namely, that the plans included too many duplicative and unnecessary investment options, which caused investors to suffer from “decision paralysis” and interfered with the ability of plan fiduciaries to negotiate lower fees.
Lawsuits over retirement plan fees have come at a rapid-fire pace since 2015, when the U.S. Supreme Court affirmed the duty of plan fiduciaries to monitor investments on an ongoing basis and largely eliminated a key defense to these types of lawsuits. That year also saw several high-profile settlements in plan fee cases brought by Schlichter, including a $57 million deal with Boeing Co., a $62 million settlement with Lockheed Martin Corp. and a $32 million agreement with Novant Health Inc.
The lawsuits take issue with the number of investment options offered in each university’s retirement plans—which allegedly ranged between 84 and 340, with multiple options in each asset class. According to the complaints, a reasonable number of investment options for a large retirement plan is closer to 15.
“Defendant provided a dizzying array of duplicative funds in the same investment style, thereby losing the bargaining power associated with offering a single option in each investment style, which significantly reduces investment fees, and causing ‘decision paralysis’ for participants,” the employees suing NYU alleged in their complaint.
The lawsuits challenge other aspects of the retirement plans, including: the use of higher-fee retail share classes when lower-fee options were allegedly available; annual record-keeping fees that allegedly ranged from $170 to $340 per participant; and the retention of historically underperforming investment funds.
In the cases against Yale and NYU, employees are attacking the decisions to use multiple record keepers, instead of a single record keeper that they say could have provided lower fees.
The lawsuit against MIT takes aim at the university’s relationship with Boston-based Fidelity Investments, which served as the plan’s record keeper and provided many of the plan’s investment options. In particular, the lawsuit accuses MIT of giving its business to Fidelity without conducting regular competitive bidding processes. The employees say this stemmed from the university’s personal ties with Fidelity and its chief executive officer, Abigail Johnson, who has served on MIT’s board of trustees since 2007.
Each university controls more than $3 billion in retirement plan assets for the benefit of thousands of plan participants, according to the complaints.
NYU officials expect to prevail in the lawsuit filed against it, university spokesman John Beckman told Bloomberg BNA in an Aug. 9 e-mail.
“NYU only first saw the papers a very short while ago this morning, so we cannot comment at length,” Beckman said. “But it seems worth noting that, first, NYU’s plans have comparatively low fees; second, decisions about our retirement plan choices are influenced by feedback from our faculty and other employees; and, third, that the named plaintiffs in this case notably include several faculty members who recently lost unrelated court cases they brought against NYU.”
“NYU takes seriously the welfare of our faculty and employees—including a dignified retirement—and the retirement plans offered to them are chosen and administered carefully and prudently,” Beckman said. “We will litigate this case vigorously and expect to prevail.”
Kimberly Allen, director of media relations for MIT, declined Bloomberg BNA’s request for comment on the lawsuit, citing a general policy against discussing pending litigation.
Yale didn’t immediately respond to Bloomberg BNA’s inquiries.
The cases are: Vellali v. Yale Univ., D. Conn., No. 3:16-cv-01345, complaint filed 8/9/16; Sacerdote v. N.Y. Univ., S.D.N.Y., No. 1:16-cv-06284, complaint filed 8/9/16; and Tracey v. Mass. Inst. of Tech., D. Mass., No. 1:16-cv-11620-NMG, complaint filed 8/9/16.
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