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Defined Contribution

Duke sued for second time over fiduciary breach claims

Participants in a Duke University 403(b) plan have sued the university alleging its management of the plan violated fiduciary duties under ERISA by conducting prohibited transactions.

The participants claim the university’s practice of revenue sharing led to money being used improperly “to reimburse Duke for its own expenses putatively in administering the plan, including paying salaries and fringe benefits of employees in Duke’s human resources department and other expenses Duke had been paying itself,” said the complaint filed Aug. 20 in U.S. District Court in Greensboro, N.C.

Although there are exemptions to ERISA’s rules against prohibited transactions, such exemptions are available “only if an independent fiduciary determined that the services provided ... were necessary to the operation of the plan” and that the reimbursement to Duke “was reasonable and constituted only the reimbursement of direct expenses,” the complaint said.

“An independent fiduciary did not determine the services for which Duke University was reimbursed were necessary to the operation of the plan,” said the complaint in Lucas et al. vs. Duke University. The university, as fiduciary for the plan, didn’t determine that the payments were reasonable or that the payment was solely for direct expenses of the plan, said the complaint.

“Duke’s making those determinations on its own and for its own benefit was a clear conflict of interest and prohibited transactions” under ERISA, the plaintiffs argued in seeking class-action status.

The complaint said the alleged prohibited practices diverted $1.56 million from the Duke Faculty and Staff Retirement Plan between 2012 and 2016. The plan had $5.18 billion in assets as of Dec. 31, 2016, according to the latest Form 5500 filing.

Keith Lawrence, a university spokesman, declined to comment.

This is the second ERISA lawsuit filed against Duke University, in its role as a fiduciary for the 403(b) plan, by the St. Louis law firm of Schlichter Bogard & Denton. (The local counsel in this case is Puryear and Lingle.)

In August 2016, several participants — including some who are plaintiffs in the latest case — filed suit in Clark et al. vs. Duke University and the Duke Investment Advisory Committee alleging several ERISA violations. The case is scheduled for trial in July 2019 in U.S. District Court in Greensboro. According to a document filed with the court last month, the parties are discussing a settlement with a mediator.

In the recent lawsuit, Duke University didn’t disclose its revenue-sharing practice to participants, “particularly that Duke had arranged this scheme on its own without any review or approval by an independent fiduciary,” the lawsuit said. “Plaintiffs did not discover this scheme until they pursued discovery” for the 2016 complaint, it said.