August 22, 2016

Understanding the Influx of Lawsuits Affecting Higher Ed. Institutions

We are sure by now you have heard about a string of law suits brought forth involving several institutions of higher learning. Eight private and very prominent universities (Emory, New York University, Yale, Duke, Johns Hopkins, the University of Pennsylvania, Vanderbilt, and MIT) were sued last week, by retirement plan participants of their respective institutions, for fiduciary breaches under ERISA (Employee Retirement Income Securities Act).
The below alleged breaches reduced returns by:
  • Failing to monitor fees charged by the plans’ recordkeeper, thus resulting in the plan and its participants paying too much in fees
  • Offering too many investment choices to participants, thereby encumbering them with too many choices and not enough guidance and limiting their ability to make wise investment choices
  • Not properly selecting institutional share classes of funds when they were available, thus causing the participants to pay too much for funds
  • Allowing too many proprietary funds of the recordkeeper to be offered when other funds were available(non-proprietary) at lower expenses
  • Not properly monitoring the plan and making timely decisions regarding the elimination of underperforming funds
  • Allowing the recordkeepers to offer individual annuity contracts (limited liquidity and increased expenses), thus limiting options for participants
  • Frequently using multiple recordkeeping vendors—limiting their bargaining power—which in turn caused participants to pay too much with respect to recordkeeping fees
The bottom line is that it appears that the plan committees/plan fiduciaries in the above cases did not have prudent practices, policies, procedures and governance in place, which would have helped address the alleged violations.
It is also expected and feared that these lawsuits ,will extend to other not-for-profit Institutions, beyond colleges and universities, as the same vendors that are prominent within higher education are found in many other types of nonprofits, thus leaving those entities vulnerable to the same types of claims.
We have experience tackling the difficult issues raised above. Please contact us to see if your institution faces similar risks and if we can potentially help.