A Win for Colleges and Universities

GavelBookSchool.jpgColleges and universities became the new target in retirement plan litigation in August 2016. Since then, 16 elite colleges and universities have faced class action lawsuits for a variety of claims including 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; utilization of funds that contained multiple expenses and multiple layers of expenses; and an array of other novel claims.[1]

In response to these claims, some of the colleges and universities fired back with motions to dismiss and over the summer, the courts started to rule on these motions. While some of the claims were dismissed in the Princeton, Columbia, NYU, Duke, and Emory cases, in each case, many of the claims survived and the cases moved ahead. 

Yesterday, a court in the Eastern District of Pennsylvania went a different direction in the case of Sweda v. University of Pennsylvania[2].  Here, the court ruled in favor of the University finding, among other things:

  • Requirement to include a Proprietary Fund. The plaintiffs argued that by “allowing TIAA-CREF to mandate the inclusion of the CREF Stock Account and Money Market Account in the Plan” the defendants committed the Plan to an “imprudent arrangement.” The court analogized to a bundled cable arrangement and found no breach of fiduciary duty.
  • Excessive Fees & Fee Structure. Citing Renfro v. Unisys Corp.[3], the court rejected the claims related to multiple vendors which allegedly caused excessive fees and the claim that the Plan should have had a flat fee charge instead of an asset-based charge. The court stated: “the plaintiffs need something more than a claim that there may be (or even are) cheaper options available. The plaintiffs must show that there were no reasonable alternatives given to plan participants to choose from, which the plaintiffs have not pled.”
  • Unreasonable Investment Management Fees. On the plaintiff’s claim of unreasonable investment management fees, again citing Renfro, the court stated: “The plaintiffs’ argument that fiduciaries must maintain a myopic focus on the singular goal of lower fees was soundly rejected in Renfro.”  And, the court here agreed with Renfro.    
  • Too Many Investment Options. The plaintiffs also argued that by offering too many investment options, there was participant confusion and, hence, paralysis. However, the plaintiffs failed to point to one single participant that was confused by the investment options and, accordingly, this claim was dismissed. 

A big win for the University of Pennsylvania and a change in course for the cases against colleges and universities. Stay tuned for more updates on this case and others in the litigation against colleges and universities, as the score is now 5 to 1 on motions to dismiss. 

Notes:

[1] For a deep dive on these class action lawsuits, listen to our webinar available here.

[2] See Memorandum of the Court with Order to Follow of Sweda v. University of Pennsylvania, available here: https://www.bloomberglaw.com/public/desktop/document/SWEDA_et_al_v_THE_UNIVERSITY_OF_PENNSYLVANIA_et_al_Docket_No_216c/4?1506093564.

[3] See, Renfro v. Unisys Corp., available here: http://www2.ca3.uscourts.gov/opinarch/102447p.pdf.


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