Compliance

Brown University Faces Familiar Allegations in 403(b) Lawsuit

Individual annuity contracts and a large plan investment lineup are targets in the Brown University lawsuit, just as they are with most other lawsuits against higher education institutions’ 403(b) plan fiduciaries.

By Rebecca Moore editors@plansponsor.com | July 10, 2017
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With wording that seems to be duplicated from filings against other higher education institutions, a complaint has been filed against Brown University and fiduciaries of its Deferred Vesting Retirement Plan and Legacy Retirement Plan.

As with other lawsuits, the complaint alleges that because the marketplace for retirement plan services is established and competitive, and because the plans have more than $1 billion in assets, the fiduciaries have tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds, but instead, they caused the plans to pay unreasonable and excessive fees for investment and administrative services.

In addition, the complaint says the retirement plans’ fiduciaries selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees. It also alleges the fiduciaries failed to negotiate fixed fees for recordkeeping services, rather than asset-based fees, and retained share classes for funds that charged higher fees than other less expensive share classes that were available for the plans for the same funds.

Also similar to other lawsuits against higher education institutions, the complaint says that instead of regularly monitoring all the plans’ investment choices and for periodically reviewing and evaluating the entire investment choice menu to determine whether it provided an appropriate range of investment choices into which participants could direct the investment of their accounts, the fiduciaries offered a “bewildering array” of investment options in the plan. At one time, the Legacy Retirement Plan offered 175 investment options through Fidelity Investments and an additional 24 investment options through TIAA, which included numerous duplicative investment choices (e.g., target-date funds from each recordkeeper), the complaint says. In addition, at one time, the Deferred Vesting Retirement Plan offered 177 investment options through Fidelity and an additional 26 investment options through TIAA, which also included numerous duplicative investment choices.

The complaint also calls out the use of individual annuity contracts offered by TIAA that only allowed participants to withdraw funds in ten annual installments unless they paid a surrender fee of 2.5%.

Finally, the lawsuit alleges fiduciaries approved a TIAA loan program that required collateral as security for repayment of the loan, charged “grossly excessive” fees for administration of the loan, and violated U.S. Department of Labor (DOL) rules for participant loan programs.

NEXT: How will 403(b) plan excessive fee lawsuits play out?

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