University 403(b) Pension Plans Gain Favorable Court Ruling
By Mark Johnson, Ph.D., J.D.


Georgetown University is the latest school to fight off a lawsuit brought against their 403(b) plans claiming a breach of fiduciary duties. Northwestern University, the University of Pennsylvania, and Washington University in St. Louis have alsohad lawsuits dismissed, while New York University succeeded in a trial hearing last year.


Participants in the two Georgetown retirement plans alleged the plans were not prudently managed and charged inappropriate administrative fees. Specifically, the participants argued poor-performing investment options should have been removed. However, the participants had not invested in those specific poorly performing options.


Last month, U.S. District Judge Rosemary M. Collyer for the District of Columbia agreed with the university’s assessment that the “plaintiffs have no standing to make some of their claims and that others fail to state a claim on which relief can be granted.” She dismissed the class action without prejudice and went on to add that ERISA “does not provide a cause of action for underperforming funds.”


An additional line of argument contended that Georgetown breached its fiduciary duty by using three recordkeepers rather than one. This claim, too, was dismissed, because Georgetown’s decision did not constitute a breach of duty, despite being an underperforming, higher-costoption than other market alternatives.


Judge Collyer noted in her opinion that this type of lawsuit is being “brought all over the country” and has “taken higher education by storm.”


The University of Chicago and Duke University recently settled 403(b) complaints, for example, while Emory, Vanderbilt, Massachusetts Institute of Technology, and Columbia University still have 403(b) lawsuits pending.Duke reached a $10.65 settlement agreement, according to recent filings with the U.S. District Court for the Middle District of North Carolina. The University of Chicago settled the retirement-plan lawsuit filed against it for $6.5 million in 2018.


In total, about two dozen colleges have faced 403(b) lawsuits since 2016, though none have resulted in a favorable ruling for the plan participants.


While the universities are winning so far, the fight is not over yet. The class members in the Georgetown case will have the chance to amend their complaint, and the participants of the New York University plan are appealing their unfavorable ruling. Some estimates suggest these cases could go on for as long as a decade.


Background on 403(b) Retirement Plans


403(b) plans are a type of tax-sheltered annuity or mutual fund retirement plan offered to certain employees of some religious, 501(c)(3) tax-exempt, and government organizations including public schools and universities. Investments in 403(b) plans are restricted to annuity contracts and certain mutual fund accounts, although participants are able to self-direct their retirement funds among the plan choices offered.


The Employee Retirement Income Security Act (ERISA), the 1974 federal law that protects participants of private retirement plans, applies to 403(b) plans, except in limited instances when religious or 501(c)(3) tax-exempt employers met certain requirements or when the plan is offered by a government organization.


ABOUT THE AUTHOR. Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or www.erisa-benefits.com. ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.


January, 2019



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