Numerous colleges and universities sponsor retirement plans—both defined benefit (DB) and defined contribution (DC)—to provide retirement income security for their employees. But recently a number of higher education institutions are facing lawsuits over details related to the management of those plans.
As widely reported in the New York Times and other media, eight private universities were sued last week over alleged breaches of fiduciary duties in the management of their defined contribution plans: Emory, New York University, Yale, Duke, Johns Hopkins, the University of Pennsylvania, Vanderbilt and MIT.
The same St. Louis-based law firm that filed each of the actions, Schlichter, Bogard & Denton, has previously targeted large corporations like Boeing, CIGNA, Kraft and Lockheed Martin with similar allegations, resulting in multi-million dollar settlements. Now the firm has turned its sights to private not-for-profit universities.
The recent lawsuits claim that the universities caused plan participants to pay millions of dollars in excessive fees for recordkeeping and other services. They also claim that the plans offered too many investment options and options that were too expensive, reducing the amounts available to participants for retirement. Most of the plans have assets worth over $1 billion; the lawsuits contend that the plans were big enough to be able to command lower fees.
More lawsuits are likely to be filed across the country. Educational institutions that offer 401(k) or 403(b) plans for employees should review their fiduciary practices. Among other considerations, schools with applicable retirement plans can:
- Ensure those responsible for selecting plan investments and service providers are trained in their fiduciary responsibilities.
- Confirm they are obtaining the fee disclosures required to be provided by plan service providers and review those disclosures to determine the fees are reasonable.
- Regularly monitor the investments offered, with a special focus on the number of investment options and their cost.
- Regularly consider whether current service providers should be retained or replaced.
- Keep records of the steps taken to monitor investments and providers.
- Be aware of bargaining power and use it to negotiate fees.