For many people August is a time of new clothes, haircuts, and school supplies. For others, it’s a time to file excessive fee lawsuits against universities with multi-billion dollar retirement plans in quick succession.
The St. Louis based law firm Schlichter, Bogard & Denton has filed 12 lawsuits in August against universities whose plans, when combined, total more than $39 billion in assets. These universities are Yale University, Massachusetts Institute of Technology, New York University, Duke University, The Johns Hopkins University, Vanderbilt University, The University of Pennsylvania, Emory University, Columbia University, Cornell University, University of Southern California and Northwestern University.
None of these lawsuits are particularly unique. Their complaints include the same allegations as many of the excessive fee lawsuits we have seen over the past several years. These allegations include everything from paying excessive record keeping fees, to maintaining expensive mutual funds when lower cost alternatives were available, to offering too many fund options for participants to choose from.
What is interesting about this recent spate of lawsuits is that plaintiffs’ lawyers have found their next pot of gold. Based on recent history we can expect these cases to settle, resulting in tens of millions of dollars in attorney’s fees. What also seems likely is that these lucrative lawsuits will begin to creep down from the huge multi-billion dollar plans to smaller university plans, and smaller plans in other industries.
What does this mean for employer-sponsored retirement plans? As all of these suits have settled out of court, it has been impossible to determine whether these plan sponsors truly breached their fiduciary responsibilities. Their decisions to settle could simply be the result of a cost/benefit analysis. The plan sponsors may have decided that the amount of time and money it would take to defend themselves would outweigh the cost of settling. Until a case is actually decided in court, it will be hard to determine where to draw the line between excessive and reasonable fees. Employers need to realize there are plaintiffs lawyers looking for new retirement plans to sue, and there is no plan size or industry that is safe.
The best way to defend against an excessive fee lawsuit is to actively review and monitor your plan’s service providers, and if you are not a retirement plan expert, hire one. If you are concerned about your company’s vulnerability to retirement plan excessive fee lawsuits, contact our Vendor Services teams today to learn how we can help you prudently manage your plan and help keep you out of trouble.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.
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