In April 2018, New York University was the first university to take to trial a case claiming it violated its ERISA fiduciary duties. And on July 31, 2018, it became the first university to win. Sacerdote v. New York Univ., No. 16-CV-6284 (KBF), 2018 WL 3629598 (S.D.N.Y. July 31, 2018).
More than a dozen lawsuits have been filed against prestigious colleges and universities claiming that they violated the Employee Retirement Income Security Act of 1974 (ERISA) in the operation of their Code Section 403(b) plans. Within the last year, University of Pennsylvania and Northwestern each won dismissal of their cases, and the University of Chicago settled its claims for $6.5 million. But NYU’s victory was the first to come after a trial, and the court’s finding of facts and conclusions of law provide lessons for ERISA fiduciaries — and not just those embroiled in their own fee cases.
Despite a total defense verdict and a finding that the committee members managing NYU’s plans did not violate their fiduciary duties, the trial court nonetheless found that some committee members who testified “displayed a concerning lack of knowledge.” Here are some tips for ERISA fiduciaries culled from the case:
- Know what an ERISA fiduciary is (and that you are one). The court was concerned that one committee member testified that she did not consider herself a fiduciary and that only the committee was a fiduciary. Consider annual trainings for committee members on the basics of ERISA. Not only will it help them serve the plan and participants better, but also it may save your company from embarrassing (and potentially damaging) testimony.
- Have an investment policy statement. One of the plaintiffs’ claims was that the committee failed as fiduciaries to adopt an investment policy statement. The court found the allegation was not supported by the facts. Written investment policies help guide fiduciaries’ selection and oversight of investment options. Fiduciaries should adopt and follow these policies.
- Learn about the plan’s investments and investing in general. The court criticized the committee’s chair for displaying “a surprising lack of in-depth knowledge concerning the financial aspects of managing a multi-billion dollar pension portfolio.” Not every committee member has to be an account, actuary, or CFO. But if your committee doesn’t know the different between a mutual fund and an annuity, it is time to call in someone who can teach them.
- Seek — and scrutinize — the advice of experts. The court’s opinion teaches that it is OK to ask an expert when you are not one yourself … but don’t accept advice blindly. NYU hired a consultant to help monitor the investments, and the court found the consultant credible. But the court also criticized some committee members for not verifying his advice or scrutinizing his recommendations (while others did). Fiduciaries must exercise independent judgment and question the opinions given by third parties.
- Have a committee charter (if your plan is managed by a committee). Proving you are fulfilling your fiduciary duties requires documents, documents, documents. The charter helps define the committee’s role and responsibilities and provides a backbone for documenting its processes.
- Know and document who is on the committee. The court was rather appalled that one NYU executive (who did not regularly attend meetings) was not even sure if he remained a committee member after he changed jobs. (The next day he confirmed he did not.) Make sure the committee charter has a process for the appointment and removal of members (even if it is simply to indicate that some individuals serve ex officio). And make sure the committee follows that process. Document in the committee minutes when members join and leave.
- Regularly solicit RFPs. NYU’s consultant recommended soliciting requests for proposal from record keepers every five years. Although NYU did not follow the advice perfectly, the court found that the committee used a considered, careful, and prudent process when selecting vendors. It also routinely negotiated lower fees with its record keepers.