Three class action lawsuits have been filed against the universities for excessive defined contribution retirement plan fees
On Tuesday, August 17, 2016 , the law firm Schlichter Bogard & Denton filed separate class action lawsuits against the three universities in the U.S. District Courts. The suits have been filed on behalf of more than 60,000 plan participants. Common to all three complaints are allegations that each university, as an employee retirement plan sponsor, breached its fiduciary duties of loyalty and prudence under the Employee Retirement Income Security Act (ERISA) by:
- Causing plan participants to pay millions of dollars in unreasonable and excessive fees for recordkeeping, administrative, and investment services
- Selecting and retaining numerous high cost and poor performing investment options, which substantially reduced the retirement assets of the active participants and retirees
In the case of MIT, a 401(k) plan, the complaint alleges MIT's close relationship with Fidelity Investments led to Fidelity's selection as plan record keeper, without any competitive bidding process in violation of the university's duty to act in the exclusive interest of its employees and retirees. Abigail Johnson has been a member of the MIT board of trustees for years and is also CEO of Fidelity, which her family controls. It also alleges MIT placed more than 150 Fidelity funds, including high priced retail funds, in the $3.5 billion plan, despite being a big enough plan to be able to command lower fees. This has allegedly caused participants to pay unreasonable administrative and investment management expenses.
NYU and Yale
In the cases of NYU and Yale, both 403(b) type plans, the complaints allege employees paid excessive recordkeeping fees in addition to selecting and imprudently retaining funds that historically underperformed for years.
The complaints also state that in contrast to actions by prudent fiduciaries of other similarly sized defined contribution plans, these universities each used multiple record keepers, rather than a sole provider. Consequently, by using multiple record keepers, the universities caused plan participants to pay duplicative, excessive and unreasonable fees for plan record keeping services, the complaint said.
Yale's plan has about $3 billion in assets, while NYU's plan has about $1 billion.
MIT spokeswoman Kimberly Allen declined to comment, while Yale spokesman Tom Conroy could not be immediately reached for comment by press time.
If you have any further questions or want to learn more about fiduciary responsibilities, ERISA, or how we can help you and your company, don't hesitate to contact us.