Compliance

Washington University in St. Louis Faces 403(b) Plan Lawsuit

The lawsuit claims plan participants paid excessive investment and recordkeeping fees and alleges the plan’s loan program violated ERISA prohibited transaction rules.

By Rebecca Moore editors@plansponsor.com | June 20, 2017
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A lawsuit has been filed against Washington University in St. Louis, Missouri, alleging multiple violations of the Employee Retirement Income Security Act (ERISA) over its selection and monitoring of its 403(b) plan investments, selection and monitoring of plan recordkeepers and the plan’s loan program.                   

The complaint first contends that because the marketplace for retirement plan services is competitive and the plan is large, it has tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds. The complaint notes that the university’s plan has more than $3.8 billion in assets and more than 24,000 participants as of December 31, 2015.

“But instead of leveraging the Plan’s substantial bargaining power to benefit participants and beneficiaries, Defendant caused the Plan to pay unreasonable and excessive fees for investment and administrative services,” the complaint says. “Further, Defendant selected and retained investment options for the Plan that historically and consistently underperformed their benchmarks and charged excessive investment management fees.”

The plaintiffs in the case allege Washington University did not negotiate separate, reasonable, and fixed fees for recordkeeping, and it continuously retained investment choices and share classes that charged higher fees than other less expensive share classes that were available for the same investment fund. “As a result, plaintiffs paid an asset-based fee for administrative services that continued to increase with the increase in the value of a participant’s account even though no additional services were being provided,” the complaint says.

The plaintiffs also accused the university of failing to regularly monitor all the plan’s investment choices and failing to periodically monitor and review the entire investment choice menu to determine whether it provided an appropriate range of investment choices into which participants could direct the investment of their accounts.

According to the plaintiffs, one piece of evidence of a flawed process was “the inclusion of a dizzying array of thirty-five TIAA-CREF and more the eighty Vanguard investment options.” The complaint notes that of the 83 Vanguard funds available to participants, for 41 of those choices, the university has designated only the retail “investor” share class as available investment alternatives offered under the plans. Of the other 42 available Vanguard funds offered by the plans, either Admiral Shares are offered with substantially lower fees or the funds offer only one share class.

“Defendant could have designated the institutional share class for the designated investment options, as opposed to investor share classes, at substantially lower cost to Plan participants,” the complaint says.

NEXT: Annuity, loan program and recordkeeper choice

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