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Judge dismisses fiduciary-breach lawsuit against Northwestern University

A federal District Court judge in Chicago has dismissed claims by participants in two Northwestern University 403(b) plans that the university violated its fiduciary duties under ERISA due to its management of investment choices and fees.

In a strongly worded rejection of these claims, Judge Jorge Alonso said the participants had failed to provide sufficient facts to support many of their allegations in their seven-count complaint. He dismissed the complaint with prejudice. He also dismissed with prejudice the plaintiffs' request to file a sealed amended complaint containing four more allegations against the plans.

The original complaint was filed in August 2016. Among the allegations, participants said Northwestern violated its fiduciary duties by keeping what plaintiffs alleged was an underperforming, high-fee CREF Stock Fund from TIAA-CREF, the record keeper for both the Northwestern University Retirement Plan and the Northwestern University Voluntary Savings Plan, both in Evanston, Ill. The plans had $2.51 billion and $584.5 million in assets, respectively, as of Dec. 31, 2016, according to the latest Form 5500 filings. (Fidelity Investments is also a record keeper for the larger plan.)

"The court fails to see how these allegations amount to a breach of fiduciary duty (because) no plan participant was required to invest in the CREF Stock Fund or any other TIAA-CREF product," Mr. Alonso wrote in his opinion Friday for the case Divane et al. vs. Northwestern University et al.

"Any plan participant could avoid what plaintiffs consider to be the problems with those products ... simply by choosing other options."

The participants also argued that record-keeping fees should have been based on a per-capita basis instead of via revenue sharing. "There is nothing wrong, for ERISA purposes, with the fact that plan participants paid the record-keeper expenses via the expense ratios they paid," the judge wrote.

The plaintiffs also argued that Northwestern violated its fiduciary duties by failing to monitor members of the retirement investment committee in their roles as fiduciaries and who are listed as defendants. After Northwestern filed a motion to dismiss this claim, "plaintiffs did not respond," the judge wrote. "Accordingly, the court deems the claim abandoned and any arguments against dismissing the claim (are) forfeited."

The Northwestern 403(b) suit was among a series of ERISA lawsuits filed against large public universities by the law firm of Schlichter Bogard & Denton.

"We will continue to pursue the case on behalf of Northwestern employees and retirees," Jerome Schlichter, the firm's managing partner, wrote in an email. "We respectfully continue to believe as many courts, including the Supreme Court, have ruled that it is a fiduciary breach to have retail funds in a billion-dollar plan when lower cost funds are available, and that imprudent funds must be removed from a plan."

Among the firm's 403(b) cases, oral arguments were recently concluded in a federal class-action lawsuit against New York University; a lawsuit against Duke University has been certified as a class action; and a lawsuit against the University of Pennsylvania, dismissed by a federal District Court, is now under appeal.