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COURTS

University of Chicago sued by DC plan participants for breaching fiduciary duty

The University of Chicago is the latest university to be sued for allegedly breaching its fiduciary duties by charging participants excessive fees and investing their retirement assets in high-cost and poor-performing funds.

Similar to allegations brought against a number of universities last year, plaintiffs in the University of Chicago lawsuit allege the university “failed to adequately investigate, examine and understand the real cost to plan participants for administrative services, thereby causing the plans and participant investors to pay grossly excessive and unreasonable (administrative) fees.”

The lawsuit further argues that the university failed in its duties to monitor the plans’ investment choices and retained certain investment options that “historically and consistently underperformed their benchmarks and charged excessive fees.”

In aggregate, the University of Chicago Contributory Retirement Plan and University of Chicago Retirement Income Plan for Employees have more than $3 billion in assets and offer more than 115 investment options managed by Vanguard Group and TIAA-CREF. Plaintiffs pointed to the “dizzying array” of more than 115 investment options as an example of the university’s allegedly “flawed” decision-making process.

Other examples cited by plaintiffs were the selection of TIAA Traditional Annuity as the plans’ principal capital preservation fund.

According to plaintiffs, investors in TIAA Traditional Annuity were prohibited from redirecting their investment into other investment options during their employment except in 10 annual installments, “effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives changed.” The TIAA Traditional Annuity option also prohibited participants from receiving lump-sum distributions of their amount invested “unless they paid a 2.5% surrender charge that bore no relationship to any reasonable risk or expense to which the fund was subject,” plaintiffs alleged.

Another example of U of C’s “flawed process,” plaintiffs argued, was the inclusion of a TIAA loan program “that required excessive collateral as security for repayment of the loan, charged grossly excessive fees for administration of the loan, and violated U.S. Department of Labor rules for participant loan programs.”

The lawsuit was filed May 18 in U.S. District Court in Illinois by law firms Wexler Wallace; Schneider Wallace Cottrell Konecky Wotkyns; and Berger & Montague.

Responding to the lawsuit, a TIAA spokesman said: “TIAA stands firmly behind its offer of high-quality products and services with strong long-term performance and reasonable costs, providing lifetime income for millions of participants. We believe the allegations reflect a fundamental lack of understanding of TIAA’s products and services and the ways we serve participants.”

A University of Chicago spokeswoman said in an emailed statement that the university “provides its employees with carefully managed benefits programs, including retirement plans, which offer a diverse selection of investment options,” and that is in the process of reviewing the lawsuit.