August 17, 2016

Excessive Fee Lawsuits in Higher Education Retirement Plans

Just as we blogged about the growth of excessive fee lawsuits in retirement plans, the news reveals that Yale, MIT, and NYU are all now the subjects of lawsuits alleging that their defined contribution plans charged employees excessive fees. On Tuesday, August 9, all three universities were sued by participants for breach of fiduciary duty, claiming that the plans used higher-cost retail mutual funds rather than other, lower-cost share classes.

Yale

“The lawsuits continue what’s become an accelerating trend over the past decade in the retirement plan industry –” says Investment News, “that of plan participants bringing claims against employers for alleged fiduciary breach under the Employee Retirement Income Security Act of 1974, due to offering high-cost investments and record-keeping and administration services.” The Wall Street Journal also makes note of the trend: Yale, MIT, and NYU are “the latest to be targeted in a wave of similar litigation challenging the use of retail mutual funds in 401(k) and other retirement plans.” While lawsuits have been targeting 401(k) plans, Yale and NYU’s 403(b) plans prove that 403(b)s are not exempt from the trend.

What does this mean for plan sponsors? It’s a great reminder to take the time to audit your plan and your plan’s fees. Check to make sure that the plan is utilizing the most appropriate share classes of funds. Litigation often comes down to the processes the committee undertakes in the selection and monitoring of plan fees, so it’s crucial to document all processes and decisions and to follow all established procedures. And consider benchmarking your plan’s fees against peers.

You can read more about the increase in excessive fee lawsuits in our recent blog post at: http://www.am-a.com/blog/are-retirement-plan-fee-lawsuits-on-the-rise/