ERISA Excessive Fee Lawsuits Hit 403(b) Plans of Higher Education Institutions
Several ERISA class action lawsuits seeking millions of dollars in damages were recently filed against eight nonprofit universities challenging the administration of their 403(b) retirement plans. Institutions coming under scrutiny include Yale University, the Massachusetts Institute of Technology, New York University, and Duke University. These lawsuits continue the trend of 401(k) fee lawsuits targeting large companies that have been filed in recent years, resulting in millions of dollars in damages and attorneys’ fees awards.
A 403(b) retirement plan may be offered by public educational institutions and non-profit organizations to their employees. These plans are similar in operation to 401(k) plans in that before-tax contributions are made to the plan and are then invested by participants tax-free until the amounts are distributed upon retirement. Like 401(k) plans, most 403(b) plans are subject to the rules of the Employee Retirement Income Security Act (ERISA).
In the cases filed in early August, the plaintiffs allege that the fiduciaries of the 403(b) plans sponsored by their university employers breached their fiduciary duty under ERISA related to the administration of the plans’ investments, in particular the number of investment options offered to participants and the fees associated with those investment options. The plaintiff employees also allege that plan fiduciaries breached their fiduciary duties by offering high-cost investment options under their plans or by paying for high-cost duplicative or inefficient record keeping and administrative services. These alleged fiduciary breaches negatively impact the long term value of plan participants’ retirement accounts. In summary, the complaints in these recently filed cases allege that plan fiduciaries:
- failed to oversee prudent investment options;
- did not take steps to ensure that fees were reasonable and/or paid excessive expenses;
- failed to negotiate for or present lower cost investment options;
- did not elicit competitive bids from providers;
- failed to remove under performing investment options;
- hired third parties that did not owe fiduciary duties to administer the plan.
So far, the lawsuits have targeted private higher educational institutions which are subject to ERISA, the federal employee benefits law, and its fiduciary requirements. Most public higher education institutions are exempt from the ERISA fiduciary rules, but are still subject to similar state law-based fiduciary requirements.
Litigation related to investment fees and the expenses paid by these plans continues to increase. These recently filed cases demonstrate ERISA’s high standards and the diligence required to properly oversee the investment offerings in a 403(b) or 401(k) plan. Fiduciaries of 403(b) or 401(k) plans can take action to mitigate the risk of litigation and ensure they meet ERISA’s high standards. Examples of this include:
- auditing their plan’s fiduciary practices;
- conducting fiduciary training for the individuals administering the plan;
- reviewing their plan’s fee structure;
- engaging in negotiations with vendors to reduce expenses; and
- hiring an investment advisor to choose and develop the investment platform for the plan.
California Employment Lawyers
With increased scrutiny and penalties in effect for ERISA violations, California employers should take the time to conduct audits to ensure compliance with the various employment laws enforced by the DOL. Should you have questions about ERISA or the various laws enforced by the Department of Labor, don’t hesitate to contact leading California employment lawyers at Kingsley & Kingsley. To discuss your situation call us toll-free at (888) 500-8469 regarding your case.
Kingsley & Kingsley
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