In a series of recent decisions, courts have weighed in on a spate of ERISA lawsuits challenging retirement plans private universities offer to their employees. These rulings, most of which allowed claims to proceed past the motion to dismiss stage, highlight the variation in standards courts apply when weighing ERISA fiduciary suits. Moreover, they underline the need for plan fiduciaries to review the performance and fees of their plans’ service and investment providers on a regular basis to determine whether the providers’ fees are reasonable and their continued retention is appropriate.
In summer 2016, participants in retirement plans sponsored by prominent universities filed putative class actions challenging several aspects of these plans. Targeted schools include Columbia, Duke, Johns Hopkins, Princeton, the University of Pennsylvania, and Yale. Courts have only recently begun issuing opinions on motions to dismiss in these cases. Only one court—in the University of Pennsylvania case—dismissed the complaint in full, with other courts varying in the claims they allowed to proceed.
Courts handed down the bulk of their opinions in August and September. The Southern District of New York granted in part and denied in part motions to dismiss in suits challenging decisions by fiduciaries of New York University’s and Columbia’s retirement plans in August, followed closely by a District of Massachusetts Magistrate Judge’s Report & Recommendation concluding that a similar case involving MIT’s plan should proceed. In September, the District of Maryland, the District of New Jersey, the Northern District of Illinois, and a different judge on the SDNY issued similar decisions in the Johns Hopkins, Princeton, University of Chicago, and Cornell cases. These courts joined the Northern District of Georgia and the Middle District of North Carolina, which earlier issued similar rulings involving Emory and Duke. All involved participant-directed, defined contribution plans, in which plan fiduciaries select a menu of investment options into which participants can direct their retirement funds.
The claims in these cases also involved similar allegations—which is unsurprising, since the suits were filed by the same counsel, as the court in the Columbia case noted—with plaintiffs alleging that the plans at issue failed to use their bargaining power to reduce costs to participants, among other claims. The plans differ somewhat in their size and their investment offerings. For example, the MIT plan at one point allowed participants to choose from among 340 investment options, while the Emory and Columbia plans offered 111 and 116 options respectively. However, the plans shared several essential features—their contracts for recordkeeping and administrative services required the plans to offer several investment options in which participants can invest, and the plans offered many of the same types of options. Indeed, the SDNY noted in ruling on the Columbia case that while the two Columbia plans and those involved in the NYU case “vary at the margins . . . no difference is material to the claims at hand.”
Despite these similarities, the courts reached divergent outcomes on several issues. The SDNY rejected claims that defendants in the NYU case breached their fiduciary duties by agreeing to a contract that required the inclusion of several investment options, holding that “while plaintiffs allege that NYU was contractually required by the service providers to include certain investment Options, there is no allegation that plaintiffs were required to invest in any particular investment Option.” (Emphasis added.) The Northern District of Georgia, by contrast, allowed such a claim to proceed in the Emory case. That court also rejected defendants’ argument that this claim was time-barred, reasoning that the defendants had a continuing duty to monitor whether the arrangement remained appropriate. The Middle District of North Carolina, however, dismissed as time-barred a similar claim in the Duke case, reasoning that the complaint’s allegations were tied to defendants’ initial entry into the arrangement. Significantly, however, these courts were in accord in rejecting claims that defendants breached their fiduciary duties by offering participants too many investment options (this coming after myriad complaints by plaintiffs alleging that plans have offered too few options), with the courts in the Johns Hopkins, Cornell, NYU, Columbia, and MIT cases all rejecting such claims.
The only court that has dismissed a complaint in its entirety—so far—is the Eastern District of Pennsylvania. As did the court in the NYU case, the Penn court rejected arguments that defendants offered too many options and that they improperly agreed to a contract requiring the inclusion of certain investment options. It went further, however, rejecting claims that certain investments were imprudent or that defendants caused the plan to pay excessive administrative fees. The courts in the NYU and Columbia cases refused to dismiss such claims, and courts addressing many of the other cases allowed an even broader range of claims to proceed to discovery. That these courts reached such differing outcomes in addressing similar claims against similar plans shows the variation that continues in courts’ approach to ERISA fiduciary claims.
Despite the variations in the opinions, the fact that most of the courts have allowed at least some claims to proceed should be significant to plan fiduciaries. Courts have varied in their reasoning and results, but the outcomes obscure some important lessons from the opinions. The report and recommendation in the MIT case, for example, highlighted changes made to the plan’s investment lineup in dismissing plaintiffs’ duty of loyalty claims, while the NYU opinion pointed to fiduciaries’ failure to take any steps over the years to reduce administrative fees. Taken together, these opinions highlight the need for plan fiduciaries to review the performance and fees of their plans’ service and investment providers on a regular basis and make changes where appropriate.