Three years ago, the 403(b) excessive fee case of Sacerdote v. New York University was decided in favor of New York University. Before the trial, several of the plaintiffs’ claims were dismissed and the plaintiffs’ challenged several of these dismissals on appeal. Under appellate review, two of those dismissals have been vacated and remanded back to the District Court for further review.
The first appeal related to the dismissal of the plaintiffs’ claim that NYU breached its fiduciary duty by offering retail mutual fund shares in the plan when lower cost institutional shares were available. The second appeal related to the lower court’s denial of leave to amend the complaint to include the NYU Committee members as named defendants in addition to the NYU Committee as a whole.
Offering the lowest cost share class: The appellate court determined that the dismissal of the share class claim prior to the bench trial was in error. The dismissal in the original decision indicated that the prudence of each investment did not need to be assessed individually but rather looked at the investments available in the plan collectively. Taken as a whole, the court determined that the presence of the retail share-classes of some investments was not sufficient to taint the entire plan. The two plans in question both offered 63 retail share class options out of 103 options in the Faculty Plan and 84 offered in the Medical Plan.
In the original complaint, the plaintiffs alleged that lower share classes were readily available and that a simple review of an investment’s prospectus would have uncovered the lower cost alternatives. The appellate court ruled that the plaintiffs had sufficiently alleged that NYU acted imprudently in offering the number of retail-class shares within the plans.
Denial of amendment to the complaint: The plaintiffs’ motion to add 17 individuals to the complaint who had served as fiduciary committee members during the class period was denied due to procedural rules. The appellate court ruled that the denial was based on the wrong legal standard and that the denial was not harmless to the plaintiffs’ case.
The original complaint named the NYU Committee as the defendant rather than individual committee members. The trial court had criticized two committee members as seeming incompetent in performing their roles as fiduciaries. These were two of the individuals that the plaintiffs sought to add to the complaint. Because the committee was the defendant, decisions were made based on the collective performance of the full committee rather than on the performance of individual committee members. The analysis and decisions may have been different had the individual committee members been named defendants in the case which is why the denial to amend was vacated.
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