More than a dozen class action lawsuits have been filed alleging fiduciary breaches in the management of 403(b) retirement plans of leading universities. The suits claim, among other things, that participants paid excessive fees and that the investment lineups were sub-optimum. If plaintiffs’ firms continue to focus on 403(b) plans and/or tax-exempt organizations, large health systems may be in the next wave of litigation. In August, a class action with similar allegations was filed against a large non-profit multi-hospital healthcare system.
Smaller plans are also becoming the target of litigation. This month, lawsuits were filed against two companies alleging that their 401(k) plans were mismanaged. According to the complaints, one plan had just under $100 million of assets and the other more than $157 million. These plans are markedly smaller than the university 403(b) plans mentioned above, and also much smaller than 401(k) plans that were targeted in earlier rounds of ERISA fee litigation.
In a piece of good news for sponsors of defined contribution plans, on September 21, 2017, US District Judge Gene Pratter of the Eastern District of Pennsylvania dismissed every count in the class action filed against the University of Pennsylvania that alleged mismanagement of the university’s retirement plans. The judge rejected the plaintiffs’ argument that “fiduciaries must maintain a myopic focus on the singular goal of lower fees.” The judge also dismissed claims that the university’s plans offered too many investment options, and that some of the options were overpriced because the fees were at the retail level. This is the first and, thus far, the only decision involving the recent class actions filed against universities where all of the plaintiffs’ claims have been dismissed. The University of Pennsylvania and its plan fiduciaries are being represented in this case by our partners Brian Ortelere and Chris Boran.
We encourage you to contact your benefits counsel if you have questions or want to discuss these developments further.