On June 28 Yale University prevailed in a lawsuit filed against the university alleging a variety of fiduciary beaches. The lawsuit alleged the typical claims made in these fiduciary cases—that the Yale defendants breached their fiduciary duties by:
- Allowing the Yale University Retirement Account Plan (the “Plan”) to pay excessive recordkeeping and administrative fees;
- Failing to monitor investment options in the Plan, resulting in poor investment performance;
- Failing to select the lowest cost share classes;
- Imprudently retaining the CREF stock fund as an investment option.
The case is unusual in a number of ways.
- The case went to trial—and was not settled out of court. This is somewhat unusual. The vast majority of fiduciary liability suits have been resolved before trial (by dismissal or settlement).
- The case was decided by a jury. We are not aware of any other fiduciary suit that was heard by a jury.
- Because this was a jury trial, we do not have a judge’s opinion on the case. Rather, we have the specific verdict of the jury on each claim against Yale.
The Jury’s Verdict
The jury determined that the Yale defendants did not breach their fiduciary duties with respect to monitoring investments, the share classes utilized in the Yale plan, or by the use of the CREF stock account.
But here’s the puzzler: with respect to the claims of excess recordkeeping and administrative fees the jury determined that:
- The Yale defendants “breached their duty of prudence by allowing unreasonable recordkeeping and administrative fees be charged to the participants in the Plan.”
- The Yale defendants’ breach of fiduciary duty “resulted in a loss to the Plan.”
- The amount of the loss from this breach was $0–and, therefore, the amount of damages for the claim was $0.
Unreasonable or Not?
Let’s think about this verdict for a moment—the Yale defendants allowed the Plan to pay excessive fees (with such fees being paid by Plan assets), but there was $0 in injury to the Plan. How can that be?
A clue to this paradox lies within the jury’s additional determination that “a fiduciary following a prudent process could have made the same decisions as to recordkeeping and administrative fees as the defendants.” In other words, the jury seems to have determined that the Yale defendants did not follow a prudent fiduciary process —but a fiduciary following more prudent practices and procedures could have ended up with the same result—and, therefore, the Plan was not harmed by the fiduciary breach. After all, the recordkeepers used by Yale (TIAA and Vanguard) are used by many institutions—so even if Yale used an imprudent process (or no process at all) to select these recordkeepers, other prudent fiduciaries have also selected these recordkeepers.
However, this potential rationale does not withstand careful scrutiny. The jury’s findings might make sense if they determined that the Yale defendants did not follow a prudent process in selecting TIAA and Vanguard. After all, TIAA and Vanguard are major recordkeepers and are selected by other large employers. However, the jury found that the Yale defendants “breached their duty of prudence by allowing unreasonable recordkeeping and administrative fees to be charged to participants in the Plan” (emphasis added). If the jury determined that the fees paid were unreasonably high, how could they also determine that a prudent fiduciary would have agreed to pay the same level of (unreasonably) high fees?
What It Might Mean
This verdict will not necessarily mean the end of this case—the inconsistent verdicts could provide the basis for post-trial motions and/or an appeal.
As noted above, the Yale case does not provide other fiduciaries with a judge’s written opinion to cite. However, as described in our prior blog (Court of Appeals Reject Generalized Allegations) defendants have had some recent successes in fending off fiduciary challenges. The Yale decision could serve to bolster fiduciaries’ willingness to go to trial (rather than accept settlements) and focus attention on actual damages suffered by a plan (or the lack thereof).
One conclusion that we can draw is that plan fiduciaries’ ongoing battle to defend their decisions will continue to evolve.