University 403(b) Plans – Continuation of Excessive Fee Litigation

Sarah Lockwood Church and Dasha G. Brockmeyer
Published June 13, 2017

Three more class action lawsuits were filed against the fiduciaries of plans maintained by institutions of higher education (University of Chicago, Princeton University, and Washington University in St. Louis). The complaints allege acts or omissions that constitute a breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”) with respect to tax deferred annuity programs, commonly known as “403(b) plans” that have been adopted and maintained under Section 403(b) of the Internal Revenue Code of 1986, as amended.

These new complaints include a variety of similar allegations, that include:

  • Failure by fiduciary to select investment choices with lower fees
  • Paying excessive recordkeeping fees to service providers
  • Failure to properly select, evaluate and monitor investment options
  • Providing too many investment options

These lawsuits come on the heels of district court opinions, issued in a case against the fiduciaries of the 403(b) pan sponsored by Duke University and a case against the fiduciaries of the 403(b) plan maintained by Emory University. These opinions denied in part and granted in part motions to dismiss filed on behalf of the defendants; but the district courts, located in two different jurisdictions, sent mixed signals. For example, in the Emory case, the Georgia District Court denied a motion to dismiss the allegation that it was a fiduciary breach to offer too many investment options. The motion to dismiss filed with respect to this same allegation was granted to defendants in the Duke University case by the North Carolina District Court. We will continue to monitor how other District Courts handle pending motions to dismiss in other excessive fee cases.1 As the viability of the various allegations emerge, we may see more excessive fee cases against Universities.

Fiduciaries of ERISA-covered 403(b) plans have not traditionally been targeted in excessive fee litigation. However, the pending cases and the recent decisions of the District Courts, reflect the increased risk to higher-education institutions. To reduce the risk, 403(b) plan fiduciaries need to review their plan governance rules and procedures, including: clarification of individuals acting as plan fiduciaries; confirming proper documentation of fiduciary status and delegation of fiduciary duties is in place; reviewing the plan’s investment policy statement and the process used to select, retain and replace investment options (including assessing expense ratios and available share classes); the process used for selecting plan service providers (investment advisors, recordkeepers, auditors); the process to evaluate for determining that the fees paid to administer the plan are reasonable, and, most importantly, that each aspect of the due diligence process performed and decisions made in accordance with such process are adequately documented.


  1. Cates v. Columbia University, Cunningham v. Cornell University, Kelly v. John Hopkins University, Tracey v. Massachusetts Institute of Technology, Sacerdote v. New York University, Divane v. Northwestern University, Nicolas v. Princeton University, Daugherty v. University of Chicago, Sweda v. University of Pennsylvania, Munro v. University of Southern California, Cassell v. Vanderbilt University, Davis v. Washington University, and Vellani v. Yale University
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