Duke, Vanderbilt, Penn and Johns Hopkins joined a growing list of universities targeted by class actions that now includes Yale, MIT, NYU, Cornell, Columbia, Northwestern and the University of Southern California.
All of the class actions were filed by St. Louis-based Schlichter, Bogard and Denton, the firm responsible for bringing Tibble vs. Edison International before the U.S. Supreme Court, a case that ruled that 401(k) fiduciaries are responsible for regularly removing “imprudent” investments from their plans.
All of the recent lawsuits have similar complaints. For example, the complaint against USC alleges that the school uses an excessive amount of record keepers, three, who charge excessive fees to participants, and that the plans include dmultiple high-priced investment options. The complaint was filed subsequent to USC’s recent 403(b) revisions to eliminate one of the plan’s record keepers, reduce investment options from 340 to 34 and remove certain fixed and variable annuity options while freezing contributions to others
Schachter said that the complaint’s accusation of too many confusing investment choices is new to ERISA lawsuits, but an argument could be made that sponsors shouldn’t ask 403(b) participants to research selections from a basket of 100 or more potential investment choices.
“They’re also basically attacking the use of active management within these plans,” adds Schachter. “They’re arguing that there are too many actively managed investment alternatives with higher fees, when the sponsor could use an index fund that carries lower fees. Never mind that they’re substantially different investment options.”
In the long run, Schachter says that the DOL rule and ERISA itself may end up applying to 403(b)s anyway due to the threat of further class actions against sponsors and plan fiduciaries.