A new Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed in the U.S. District Court for the District of Columbia names as defendants Georgetown University and several officials tasked with overseeing the university’s defined contribution (DC) retirement plans.

Matching almost verbatim the charges filed previously against many large universities’ 403(b) retirement plans, plaintiffs here suggest that instead of leveraging the Georgetown plans’ substantial bargaining power to benefit participants and beneficiaries, defendants failed to adequately evaluate and monitor the plans’ expenses and caused the plans to pay unreasonable and excessive fees for investment and administrative services.

According to the text of the complaint, defendants’ first breach of duty “was to fail to select a suitable, single service provider to provide administrative and recordkeeping services to the plans in exchange for a reasonable amount of compensation.” Rather than negotiating a separate, reasonable and fixed fee for recordkeeping with a single administrative provider to the plans, plaintiffs argue defendants continuously retained three different service providers—TIAA, Vanguard and Fidelity.

Plaintiffs argue it was inappropriate to allow each of these recordkeepers to supply the plans with a separate menu of investment choices including mutual fund share classes that charged higher fees than other alternatives that offered the same investment strategies or less expensive share classes of the exact same investment fund—or both.

“Fees for administrative services were charged and paid to these three companies as a percentage of the overall expenses paid for investing in the various investment options offered within the plans (including expensive choices and/or share classes),” the challenge contends. “As a result, plaintiffs paid asset-based fees for administrative services, which continued to increase as the value of their accounts increased through additional contributions and investment returns even though no additional services were being provided to plaintiffs as their fees went up.”

Each of these three platform providers maintained separate and exclusive menus of investment choices, effectively creating three investing segments for each of the plans. The TIAA segment offered a guaranteed interest annuity, nine variable annuities that operated like mutual funds, and thirty-one mutual funds; the Vanguard segment offered nearly ninety mutual funds; and the Fidelity segment offered roughly one hundred and ninety mutual funds.

Plaintiffs argue the sheer volume of three hundred total investment choices for retirement investors indicates that defendants failed properly to monitor and evaluate the historical performance and expense of each of these funds, compare that historical performance and expense to a peer group of funds and/or even compare the three segments against one another. “This strategy chosen by defendants results in the inclusion of many investment alternatives that a responsible fiduciary should exclude and which unreasonably burdens plan participants who do not have the resources to pre-screen investment alternatives in the way defendants do,” the lawsuit contends.

According to plaintiffs, there is further evidence of a flawed fiduciary process, “namely, approval of a TIAA loan program for University employees who elected to borrow against their retirement plan savings.” As the text of the suit spells out, this program “required excessive collateral as security for repayment of these loans, required an illegal transfer of plan assets to TIAA as collateral for the loan repayment when no such transfer is necessary or permitted, and violated DOL rules for retirement plan participant loan programs.”

To remedy these alleged fiduciary breaches, plaintiffs seek relief under 29 U.S.C. §1132(a)(2) and (3), as well as 29 U.S.C. §1109(a). The full text of the complaint is available here.

By way of context, it should be pointed out that the majority of the lawsuits to emerge targeting 403(b) plans of large universities are still in their early stages, and they cannot necessarily be directly compared to 401(k) plan litigation, which has developed a lot further as a general category. Georgetown says it is currently reviewing the complaint. In a very brief statement, the university says it “continually monitors its retirement plans’ investment offerings and service providers and regularly makes changes that it believes are in the best interest of plan participants.” 

It stands to reason that the school will do what others have done, arguing that the 403(b) market is historically and factually today quite different from the 401(k) plan market, and thus that all this alleged wrongdoing is being taken grossly out of context. However, some groups of 403(b) plan plaintiffs have already had some success jumping early procedural hurdles, easily surpassing motions to dismiss for lack of standing. Notably, earlier in February, the U.S. District Court for the Southern District of New York ruled to certify a sizable class of plaintiffs in the ERISA lawsuit targeting two 403(b) retirement plans at New York University. That lawsuit will now proceed to trial.