Compliance

More University 403(b) Plans Targeted in Excessive Fee Suits

The complaints are nearly identical, with a few exceptions.

By Rebecca Moore editors@plansponsor.com | August 15, 2016

Excessive fee lawsuits have been filed against 403(b) plans of Emory University, the University of Pennsylvania, Johns Hopkins University and Vanderbilt University.

The complaints are nearly identical to those filed against MIT, New York University, Yale and Duke University, alleging that instead of using the plans’ bargaining power to benefit participants and beneficiaries, the defendants allowed unreasonable expenses to be charged to participants for administration of the plans, and retained high-cost and poor-performing investments compared to available alternatives. And, the suits call out the traditional 403(b) plan model of offering multiple funds (fund lineups of the plans in the suits range from 78 to more than 400), including individual annuities, and using multiple recordkeepers.

The cases accuse the plans of not performing a competitive bidding process to consolidate recordkeepers and/or negotiate better recordkeeping fees. They also allege the plans used revenue-sharing.

However, in the case of Henderson v. Emory University, Mary L. Cahill, the current vice president of Investments and chief investment officer of the university is singled out as a defendant. Cahill is responsible for approving investment selections for the Emory University Retirement Plan and the Emory Healthcare, Inc. Retirement Savings and Matching Plan as recommended by Emory Investment Management. The case seems to say that Cahill should have known better than approving so many investments and expensive investments, noting that before joining Emory, she was deputy chief investment officer at Xerox Corporation where she was responsible for developing, recommending and implementing investment alternatives for Xerox’s $12 billion in defined benefit and defined contribution plan assets.

The lawsuit also notes that, in contrast to the administration of the other plans, the Emory Clinic, Inc. Retirement Savings Plan—a 403(b) plan with only $310.4 million in assets and 2,231 participants has a single recordkeeper and invested in lower-cost share classes than the other plans for many of the same mutual fund options offered to participants.

In addition, the Emory complaint says defendants allowed participants to be charged asset-based fees for recordkeeping, instead of flat per-participant rates. “Because revenue sharing payments are asset-based, the already excessive compensation paid to the Plans’ recordkeepers became even more excessive as the Plans’ assets grew, even though the administrative services provided to the Plans remained the same,” it states.

In the Cassell v. Vanderbilt University complaint, it is noted that in April 2015, Vanderbilt consolidated from four recordkeepers to one. However, the compliant questions why it took the university so long to do so. “There was no loyal or prudent reason that Defendants failed to engage in such process long before April 2015, and before 2009,” the compliant says.

The complaint in Kelly, et. al. v. The Johns Hopkins University is here.

The complaint in Sweda v. The University of Pennsylvania is here.

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