In recent weeks, multiple class action lawsuits have been filed against private, nonprofit universities across the country alleging breaches of fiduciary duty and claiming millions of dollars in damages for retirement plan participants. Each action was filed by the same law firm that previously filed similar class actions against several large private companies and which now appears to be targeting higher educational institutions.
Most colleges and universities offer some form of retirement plan benefits to their employees, either through a 401(k) plan or 403(b) plan. These plans provide an opportunity for employees and universities, on behalf of employees, to set aside money on a pre-tax basis that is invested in a 401(k) or 403(b) plan until retirement. Such plans that are sponsored by private colleges or universities are generally subject to the Employee Retirement Income Security Act of 1974 (ERISA). The recently filed litigation alleges that university sponsors breached their fiduciary duties under ERISA by causing plan participants to pay excessive fees for recordkeeping services and expensive under-performing investment options.
Large and small educational institutions offering 401(k) or 403(b) plans are encouraged to conduct compliance reviews of their retirement plans, specifically with respect to their fiduciary practices. If you choose to conduct a compliance review, consider including the following elements:
- training for all plan fiduciaries regarding their fiduciary responsibilities under the plans;
- a review of the applicable vendor agreements and associated fees to ensure reasonableness; and
- an evaluation of the number, performance, and expenses related to the investment options under the plan.
If past is prologue, educational institutions can expect to see more of this type of excessive fee litigation and should plan accordingly.