NEW YORK (Legal Newsline) – Three prestigious universities have been the targets of lawsuits filed in August regarding their retirement plan fees. The lawsuits seek millions of dollars in damages.
"There has been a wave of fiduciary breach litigation over the past 10 to 15 years, and it appears that the wave has now reached higher education," Robert Patterson, a member of the employee benefits, health care and cybersecurity practice groups at Bond Schoeneck & King's Buffalo, told Legal Newsline.
The litigation filed against New York University, Massachusetts Institute of Technology (MIT) and Yale was the topic of an Aug. 9 New York Times article. The three universities, with retirement plans that hold more than $3 billion in assets, and are being individually sued by employees who are seeking class action status for their cases.
"Each complaint is somewhat different, but in general, the plaintiffs allege that the fiduciaries of each university’s retirement plan(s) breached their fiduciary duties to the plan’s participants by failing to prudently select investment options for the plan, especially by allowing excessive fees and expenses to be paid to investment advisers," Patterson said.
Universities are at risk because publicly available tax forms can be used to ferret out actionable problems, Patterson said.
"Most retirement plans have to file annual reports with the Internal Revenue Service on Form 5500 that include information on trust holdings and fees paid to service providers," Patterson said. "These forms are publicly available, so that plaintiffs' attorneys probably can spot potential issues simply by reviewing these filings."
The litigation filed against the three universities are similar to lawsuits filed on behalf of clients by various law firms, including Schlichter Bogard & Denton, Patterson said.
"Plaintiff’s law firms, led by Schlichter, Bogard & Denton, have brought dozens if not hundreds of similar cases in the past 10 to 15 years," Patterson said. "The new cases are significant because, to my knowledge, they are the first such lawsuits brought against plans sponsored by major U.S. universities."
Since the New York Times article came out, a similar case was filed by Schlichter Bogard & Denton against Duke University, Patterson said. Schlichter Bogard & Denton, with offices in St. Louis and Belleville, Illinois, aggressively represents individuals injured by corporate wrongdoing and consistently prevails against many of the world's largest companies, the firm's website says.
In general, the cases claim that the companies' retirement plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) and selectively invested in a way that maximized returns while often minimizing fees.
"Interestingly, the complaint against MIT alleges that the school dramatically changed its roster of investment funds in 2015, reducing the number of investment options from 340 to 37," Patterson said. "The plaintiffs allege that, in making this change last year, the plan’s fiduciaries were effectively admitting that the previous arrangement was imprudent."
The lawsuit against MIT cites a 2015 university document that described the investment changes to participants, saying the previous dispersal of the plan’s assets made it possible to take full advantage of participants’ collective purchasing power.
"So in making these recent changes, it’s possible that MIT drew attention to its previous, allegedly imprudent, arrangements," Patterson said.
It is time for universities to go on the defensive by firming up the relationship they have with their plan vendors, particularly investment providers, and their fiduciary policies and procedures, Patterson said.
"They must be able to show that retirement plan fiduciaries have fulfilled their ERISA duties of prudence and loyalty in the selection and monitoring of all service providers," he said. "Or, if they cannot, they must make revisions to their policies and procedures as quickly as possible."
Defense likely will be costly, Paterson said.
"If you are referring to attorneys fees, I could not give an estimate," he said. "But obviously, the fees for federal court litigation that could last several years would be very substantial."