Another university is charged with breaching its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing plan participants to pay excessive investment and administration fees.
The proposed class action lawsuit against the University of Chicago says, “Because the marketplace for retirement plan services is established and competitive, and because the Plans have billions of dollars in assets, the Plans have tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds.”
However, the lawsuit contends that rather than negotiating separate, reasonable and fixed fees for recordkeeping, participants paid an asset-based fee for administrative services that continued to increase with the increase in value of participants’ accounts even though no additional services were offered.
In addition, the lawsuit accuses university fiduciaries in failing to monitor investments and retaining certain investment options for the plans that historically and consistently underperformed their benchmarks while charging excessive fees. The lawsuit calls out the inclusion of “a dizzying array” of 35 TIAA-CREF and more the 80 Vanguard investment options. Interestingly, judges in lawsuits against Emory University and Duke University had differing opinions about the effect of such large fund lineups.
According to the complaint, the university selected as the plans’ principal capital preservation fund, an insurance company fixed-income account, the TIAA Traditional Annuity, that prohibited participants from re-directing their investment in the Traditional Annuity into other investment choices during employment except in ten annual installments, effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives changed. The Traditional Annuity also prohibits participants from receiving a lump sum distribution of the amount invested in the Traditional Annuity unless they paid a 2.5% surrender charge that bore no relationship to any reasonable risk or expense to which the fund was subject.
The university is also accused of approving a TIAA loan program that required excessive collateral as security for repayment of the loan, charged grossly excessive fees for administration of the loan, and violated U.S. Department of Labor (DOL) rules for participant loan programs.
The suit seeks to restore to the plans all losses resulting from each breach of fiduciary duty, as well as other equitable or remedial relief for the plans as the court may deem appropriate.