Columbia University Target of ERISA Excessive Fee Suit

The lawsuit claims the university’s 403(b) plans’ investment options were imprudent and expensive.

An employee of Columbia University has filed a lawsuit on behalf of participants and beneficiaries in the Retirement Plan for Officers of Columbia University and the Columbia University Voluntary Retirement Savings Plan for breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA).

In a statement to PLANSPONSOR, the university said, “Columbia is proud of the retirement benefits offered to its faculty and staff and takes its responsibility as a fiduciary seriously. Columbia does not comment on pending litigation.”

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The claims in the lawsuit are similar to lawsuits filed against eight other large universities in the past couple of weeks. However, this lawsuit was filed by a different law firm. This case involves more than 27,000 participants and former participants of the plans. 

According to the complaint, billion-dollar defined contribution plans, like Columbia’s plans, have tremendous bargaining power to demand low-cost administrative and investment management services. The case alleges that instead of leveraging the bargaining power of both plans, Columbia University caused the plans to pay unreasonable and greatly excessive fees for recordkeeping, administrative, and investment services. In addition, it claims that instead of using its sophistication to identify and select high-quality investments that benefited participants and beneficiaries, Columbia University selected and retained expensive and poor-performing investment options that consistently and historically underperformed their benchmarks and similar funds. 

“By acting contrary to their fiduciary duty, Columbia University caused both plans, and hence participants, to suffer hundreds of millions of dollars of staggering losses to retirement savings,” the complaint states. 

The complaint specifically mentions the TIAA-CREF Stock Account R3, which represented nearly $1 billion of the plans’ assets, saying it ranked in the bottom quartile for the past three, five, and 10 years for like investments, according to Morningstar. In addition, the complaint says Columbia University loaded the plans with many retail share class options that were more expensive than the institutional share class options in the same mutual funds that were otherwise available for Columbia University to include in the plans. 

The complaint also calls out annuity products offered by the plan which have restrictions for when participants can liquidate assets in the products and charge a surrender fee if they liquidate assets before the restriction period.

According to the complaint, Columbia University used two recordkeepers for its plans, TIAA and Vanguard, which caused participants in the plans to pay duplicative, excessive, and unreasonable fees for plan recordkeeping and administrative services.

The lawsuit seeks damages for financial losses to plan beneficiaries resulting from the plans’ underperforming investments and excessive fees; reform to Columbia’s retirement plans that would remove imprudent investments and ensure only reasonable recordkeeping expenses; and the removal of the University’s fiduciaries who have violated their duties to plans’ beneficiaries under ERISA.

Retirement Loan Eraser Improves Retirement Outcomes

The solution pays off retirement plan loans for participants who face circumstances beyond their control.

Helping participants maintain retirement savings in their accounts and improve their retirement outcomes is in the best interest of participants, so it is a fiduciary obligation for plan sponsors.

In addition, panelists who spoke at the 2016 PLANSPONSOR National Conference noted that the greater the number of participant loans and the greater the number of loan defaults a plan has, the greater the likelihood of an Internal Revenue Service (IRS) or Department of Labor (DOL) audit.                  

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So, it makes sense to prevent loan defaults. Tod Ruble, CEO of Custodia Financial in Dallas, says this is especially true for participants who face circumstances beyond their control—the participant’s death, permanent disability or involuntary job loss.

To help with this, Custodia has launched Retirement Loan Eraser (RLE), a guaranteed loan protection program that protects retirement plan accounts from leakage. The insurance will pay off the loan in one lump-sum to prevent default. The payment includes the outstanding balance upon default, plus accrued interest, Ruble says.

Ruble explains there are two ways to offer the protection. Some organizations want to make RLE available to participants and have them make the decision. When the participant is making the decision, she is made aware of the availability of protection through the automated website from the plan recordkeeper at the time of borrowing. Or in the case of RLE Direct, plan sponsors decide it is best to cover all employees and purchase the protection as a plan expense.  “It is almost akin to buying fiduciary insurance,” Ruble says. “Plan sponsors are maintaining fiduciary obligations and improving outcomes for participants.” RLE Direct can be paid for by the plan sponsor, the plan or the participants. 

“It doesn’t change any loan protocols, the loan will just have this insurance embedded in it,” Ruble adds. “There is no change to the plan document, summary plan description (SPD) or the plan’s loan policy.”

NEXT: Important communications offered

Retirement Loan Eraser also includes important communications to participants. “We use our relationship to communicate with participants. When they first select coverage, we congratulate them on being covered and explain what the protection provides and when. We stay in contact from the point they borrow,” Ruble says. “Then if they lose their job, we immediately contact them and remind them of the protection. We essentially tell them to not cash out because their account will be replenished. That’s the point when participants need to be guided the most.”

He adds that Custodia also provides numerical data to participants showing the retirement savings they will miss out on if they cash out at that time. “In the case of the median $4,600 loan, a full cash out can cost as much as $265,000,” he notes.

Ruble says, after seven years of hard work and a significant investment in the program, he feels it is finally getting the traction it deserves. “We wanted to make sure in dealing with recordkeeping platforms, plan sponsors and advisers, we didn’t create a program with unintended consequences, so we soft-launched late last year, and had it tested by large recordkeepers that took it to their client advisory boards to get feedback about what would make it important and make them willing to use the solution,” he notes.

Custodia took that feedback and revised the program, making it actionable and available. The company has two dozen plans in various stages of adoption. Eight to 10 million participants will have access to Retirement Loan Eraser by the end of first quarter next year. It is now available to the jumbo plan market with support of major recordkeeping platforms.

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