Breach of Fiduciary Duty Case Against University Retirement Plan Fiduciaries Survives Motion to Dismiss

by Ballard Spahr LLP
Contact

Ballard Spahr LLP

A plaintiffs' class action law firm in St. Louis made national headlines last August when it filed a series of breach of fiduciary duty lawsuits under ERISA, the federal employee benefits law, against the fiduciaries of "jumbo" 401(k) and 403(b) retirement plans maintained by large universities. The lawsuits allege, among other things, that the university fiduciaries have breached their fiduciary duties under ERISA by allowing excessive investment management and recordkeeping fees to be charged to participant 401(k) and 403(b) accounts, and by offering underperforming investment options in the plans.

On Wednesday, the U.S. District Court for the Northern District of Georgia issued the highly anticipated first ruling in the university breach of fiduciary duty cases. In Henderson v. Emory University, the court ruled that, for most of the claims asserted, the plaintiffs had properly stated a claim that survives the defendants' motion to dismiss. In doing so, the court assumed that all facts alleged by the plaintiffs were true, and construed those facts in the light most favorable to the plaintiffs. The case will now proceed to discovery and, potentially, trial.

Among other things in the 26-page opinion, the court noted that:

  • The plaintiffs alleged that Emory's 403(b) plan offered more than 100 mutual funds with higher costs than identical mutual funds that could have been offered by the plan, which was sufficient for plaintiffs to state a claim that choosing retail share classes over institutional share classes was imprudent.

  • The plaintiffs alleged that the fiduciaries did not negotiate with the plan record keeper to replace certain underperforming funds that were included in the record keeper's platform, which was sufficient for plaintiffs to state a claim that the fiduciary's process for choosing fund options was flawed.

  • The fiduciaries can be held accountable for failing to monitor revenue-sharing fees charged by the plan record keeper.

  • The plaintiffs' allegation that the use of multiple record keepers was inefficient and costly was sufficient to state a claim for relief for a breach of fiduciary duty based on excessive fees.

  • The plaintiffs' allegation that the lack of competitive bidding caused the plan to pay fees far in excess of what was reasonable was sufficient to state a claim for relief.

Interestingly, the court granted the defendant fiduciaries' motion to dismiss the claim that it was imprudent for the plan to offer 111 investment options. The court disagreed with the plaintiffs and explained that having too many investment options does not hurt participants, but rather provides them with additional opportunities to choose investments they prefer.

Universities and other 401(k) and 403(b) retirement plans sponsors around the country have been carefully monitoring these cases to see how courts will handle the asserted claims for breach of fiduciary duty. With the first case surviving a motion to dismiss, employers and plan fiduciaries should carefully assess their fiduciary processes.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.