Over the past few months, decisions have been issued in six of these cases (the suits against MIT, The University of Pennsylvania, Johns Hopkins, NYU, Duke and Emory). Here are some comments on this first round of decisions.
A little over a year ago a series of lawsuits were filed against major universities.
The lawsuits alleged that these schools violated their fiduciary obligations under ERISA by failing to properly manage plan costs and investment performance. In effect, these lawsuits were the higher ed/tax sheltered annuity version of the 401(k) litigation that has been going on for over a decade.
Over the past few months, decisions have been issued in six of these cases (against MIT, The University of Pennsylvania, Johns Hopkins, NYU, Duke and Emory). Here are some comments on this first round of decisions:
• In five of these six decisions, the courts have denied (at least in part) plaintiffs’ motions to dismiss. In the surviving cases, some claims have been dismissed—but some remain. So, these cases will continue. The only case that was completely dismissed was the suit against Penn (more about that one below).
• This first round of decisions are all on defendants’ motions to dismiss. In order to survive a motion to dismiss the court must find that the plaintiffs have alleged facts which (if true) plausibly point to a valid legal claim. At this stage, the courts are not assessing whether the facts alleged are true or whether those facts really do demonstrate a legal claim; that comes later.
• The fact that these claims have survived will, if nothing else, encourage plaintiffs’ lawyers to file more “copycat” suits against other employers the hope of extracting settlements.
• The consistent thread in the five surviving suits is that the courts were willing to allow the claims that were based on allegations that these fiduciaries failed to meet their ERISA obligations by allowing their plans to pay excessive fees. The specific claims of excessive fees varied in these different cases (ranging from the use of actively managed funds, retail share classes, or excessive recordkeeping fees). But, the courts were consistently willing to consider that these allegations of “excessive” fees supported continuation of the lawsuits.
• The one court that completely dismissed the lawsuit (Sweda v. Univ. of Pa) focused on the fact that the plan offered some lower cost funds and some higher priced retail share classes funds, and that the presence of the lower cost share classes justified the dismissal of the case. However, the court failed to address why it was willing to dismiss claims against a fiduciary process that retained a significant number of retail share class funds in a $3.8 billion plan. In effect, the court seems to have focused on an outcome without assessing whether the underlying fiduciary process was adequate. In this regard, the Sweda court is an outlier.