Recall the twelve lawsuits filed by Schlichter Bogard & Denton against colleges and universities back in August? The cases haven’t gone away yet. Fortunately for plan sponsors though, Schlichter’s filing was just the beginning of the process, as the colleges and universities are now getting their turn to respond.
Since the beginning of October, six of the twelve schools have had the opportunity to argue for dismissal of their respective cases. Among the many claims alleged, these lawsuits attack plan fiduciaries for offering multiple recordkeepers, which resulted in higher fees for participants; too many total investment options and duplicative investment options which created confusion for participants; revenue sharing arrangements that led to excessive fees to service providers or as “kickbacks” to the plan sponsor; and utilization of funds that contained multiple expenses and multiple layers of expenses. (For a deep dive on these class action lawsuits, listen to our webinar available here.)
The plan sponsors are now firing back with a variety of arguments – some novel and most of which were to be expected.
Prudence
One new argument is the notion that because all twelve lawsuits were filed concurrently, and ERISA requires prudence (doing what others similarly situated would do), then isn’t it clear that all twelve schools were doing what was prudent (because they were all doing the same – or similar – actions as alleged by Schlichter).
Cost Is Not Dispositive
The “[p]lan’s fiduciaries need not—indeed cannot—treat cost as the sole determinative factor.”1 ERISA doesn’t require plan fiduciaries to make available the cheapest option, but rather ERISA requires plan fiduciaries make available a diversified portfolio of investment options.2
Use of a Committee to Monitor Investments.
The investments were “continually monitored by the participants’ own peers,” argued MIT, which utilized a committee comprised of both administration and faculty, including MIT’s Executive Vice President and Treasurer, selected faculty members and other employees.
Among the six cases, other arguments were made, but we will wait to see what the court decides. As for the other six schools, additional motions to dismiss are due to the courts before the month is over. Stay tuned to learn more about these cases and how they may impact your governance and fiduciary best practices as a plan sponsor to ERISA-covered retirement plans.
1 Tracey v. Mass. Inst. of Tech., Memorandum in Support of Defendants’ Motion to Dismiss Plaintiffs’ Compliant, available at: https://www.bloomberglaw.com/public/desktop/document/Tracey_et_al_v_Massachusetts_Institute_of_Technology_et_al_Docket/2?1476365803.
2 See, Kelly v. Johns Hopkins Univ., Defendant’s Memorandum of Law in Support of its Motion to Dismiss, available at: https://www.bloomberglaw.com/public/desktop/document/Kelly_et_al_v_The_Johns_Hopkins_University_Docket_No_116cv02835_D/2?1476366807.