Compliance

Emory University Excessive 403(b) Plan Fee Suit Moves Forward

However, one of the motions to dismiss granted by a federal judge addressed a claim by participants that the plan offered too many funds.

By Rebecca Moore editors@plansponsor.com | May 12, 2017
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A federal judge has denied in part and granted in part Emory University’s 403(b) excessive fee suit.

Among the claims for which U.S. District Judge Charles A. Pannell, Jr. of the U.S. District Court for the Northern District of Georgia granted dismissal, was the claim that the plan included too many funds in the investment lineup. The plaintiffs argue that having too many investment options is imprudent. They asserted that the plans offered 111 investment options, and that many of those options were duplicative. Instead, the plaintiffs allege that the plans should have offered fewer options and used more bargaining leverage with those investment options to obtain lower fees.  

Pannell said he does not agree with the plaintiffs’ theory. “Having too many options does not hurt the plans’ participants, but instead provides them opportunities to choose the investments that they prefer,” he wrote in his opinion

In the lawsuit, the plaintiffs’ primary allegations are that the plans’ fiduciaries did not use their bargaining power to negotiate for lower expenses and exercise proper judgment in deciding what investment options to include in the plans. In addition, they allege Emory fiduciaries allowed the recordkeepers to tie the plans to certain investment options, and collected “unlimited asset-based compensation from their own proprietary products.” 

The defendants’ first argument is that the plaintiffs’ prudence claims fail as a matter of law. They argue that the plaintiffs fail to state a plausible claim that the plans’ investment management fees were excessive. But, Pannell noted that the complaint sets out close to 100 mutual funds used by the plans with higher costs than identical mutual funds the plans could have attempted to negotiate for with lower costs. Parnell found the plaintiffs have properly stated a claim that choosing retail-class shares over institutional-class shares is imprudent.

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