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August 11, 2016 01:00 AM

4 more top universities targeted for fiduciary breaches in 403(b) plan management

Robert Steyer and Greg Iacurci, InvestmentNews
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    College Hall on the University of Pennsylvania campus in Philadelphia

    Duke University, Johns Hopkins University, University of Pennsylvania and Vanderbilt University became the latest universities to be sued over allegedly breaching their fiduciary duties in the management of their 403(b) plans.

    Allegations among the lawsuits are nearly identical.

    “Defendants failed to use the plan's bargaining power, causing the plan to pay unreasonable and greatly excessive fees for record-keeping, administrative and investment services,” said the Duke lawsuit, filed Wednesday in U.S. District Court in Greensboro, N.C.

    “Defendants also selected and retained investment options for the plan that consistently and historically underperformed their benchmarks, and charged excessive investment management fees,” said the lawsuit, filed by law firm Schlichter Bogard & Denton, led by Jerome J. Schlichter, founding and managing partner.

    The law firm filed all four suits, on top of three filed earlier this week against the 403(b) plans of New York University and Yale University as well as against a 401(k) plan of the Massachusetts Institute of Technology, citing an assortment of fiduciary duty breaches.

    Mr. Schlichter didn't return a request for comment.

    The Duke, Johns Hopkins, UPenn and Vanderbilt 403(b) plans each have more than $3 billion in assets and tens of thousands of participants. Participants in the plans are bringing suit on behalf of a proposed class.

    Among other things, the latest lawsuits argued the four plans have too many record keepers and too many investment options. The Johns Hopkins plan has five record keepers and more than 440 investment options; the Duke plan has four record keepers and more than 400 investment options; Vanderbilt, four and 340; and UPenn, two and 78.

    Having four record keepers is an “inefficient and costly structure” that forces participants to pay “duplicative, excessive and unreasonable fees,” the Duke lawsuit said.

    The Duke lawsuit said some of the mutual fund shares are retail-priced, which are “designed for small individual investors (and) not jumbo retirement plans” such as the Duke plan. Institutional share classes for mutual funds are cheaper than the comparable retail share-priced funds, the lawsuit said.

    The inefficiencies of using multiple providers as well as excessive revenue-sharing payments to these providers, contributed to $45 million in lost savings in the last six years for Duke's participants, and $25 million for Vanderbilt's, according to the plaintiffs.

    “Duke provides a range of options that give employees flexibility in designing retirement plans to meet their individual needs,” Michael Schoenfeld, Duke's vice president for public affairs and government relations, wrote in an e-mail. “These investments are reviewed and carefully managed in accord with federal law to provide low costs and good outcomes for our employees. We will continue to commit to these guiding principles.”

    Similarly, UPenn spokeswoman Phyllis Holtzman said the university uses a “rigorous process to review all aspects of the investment options offered to its faculty and staff to ensure they are administered with the highest degree of care and prudence.”

    UPenn plans to defend itself vigorously against the lawsuit, Ms. Holtzman said.

    Vanderbilt hasn't yet been served with the complaint and hasn't had the opportunity to review allegations, spokeswoman Beth Fortune said. A spokesman for Johns Hopkins didn't return a request for comment.

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