June 1, 2017

Another Lawsuit Claiming Breach of Fiduciary Duty

The new lawsuit against the University of Chicago filed by retirement plan participants on May 18 in Illinois can serve as a reminder of the critical importance of fiduciary responsibility. Plaintiffs are suing the University of Chicago for breach of fiduciary duty, alleging that the college failed in its fiduciary duty, resulting in excessive administrative and investment fees and fund underperformance. The University of Chicago’s retirement plans in aggregate have over $3 billion in assets and more than 36,000 participants.

Perhaps one of the most egregious examples of poor fiduciary decision-making the plaintiffs point out is that the University of Chicago Retirement Plans had “a dizzying array” of more than 115 fund options in its lineup. Faced with the difficult burden of making investment decisions themselves, participants are often afflicted with paralysis of choice when faced with too many options. Plan sponsors can build investment lineups that will support and guide participants rather than engendering more confusion.

Additional complaints focused on excessive asset-based administrative fees, high investment fees due to using suboptimal share classes, restrictions and prohibitions on the plan’s annuity option (including a 2.5% surrender charge for participants to withdraw lump-sum distributions “that bore no relationship to any reasonable risk or expense to which the fund was subject”), unreasonable loan requirements, and excessive loan administration fees.

This lawsuit highlights how important plan design decisions are, both from a fiduciary perspective and to help participants achieve a successful retirement. To learn more about how plan sponsors can mitigate fiduciary risk by using plan design best practices, please read the first two papers in our Retirement Plan Best Practices white paper series:

Retirement Plan Best Practices: Plan Governance

Retirement Plan Best Practices: Plan Design

The next white paper in the series will address investment menu construction: coming soon!