Compliance

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

By Rebecca Moore editors@plansponsor.com | May 12, 2017
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In addition, the defendants contend that the plaintiffs have not stated a claim that they acted imprudently by including actively managed funds instead of solely passively managed funds. The plaintiffs argue that the plans’ administrative and recordkeeping providers required the defendants to include their preferred investment lineup in the plan as investment options for participants. The plaintiffs contend that these fund options were not included in the plans based on the best interest of the participants, but instead to benefit the plans’ service providers. TIAA-CREF required the plans to “offer its flagship CREF Stock Account and Money Market Account, and to also use TIAA as recordkeeper for its proprietary products,” the plaintiffs say. The plaintiffs argue that the plans should have instead used an open architecture model. That would allow the plans’ fiduciaries to choose funds independently and in the best interest of the participants because the plans would not be subject to using only the provider’s investment products.

According to the complaint, the plaintiffs contend that the defendants failed to properly analyze the funds allowed in the plans, and that if they had analyzed the funds they would have learned that the actively managed funds (including the funds the recordkeepers required the plans to use) would not outperform similar passively managed funds. Even if an investment was no longer prudent, the plaintiffs argue that the defendants’ agreement with the plans’ providers would not allow many of the funds to be removed because the contract with the providers required the plans to retain the investment options.

The defendants argue generally that the plaintiffs’ claim fails because simply having an actively managed fund instead of a passive fund is not imprudent. However, Pannell said the plaintiffs’ claims are not that simplistic. The plaintiffs contend that the defendants acted imprudently because they did not properly analyze the funds used in the plans, were forced to use certain funds provided by the recordkeepers, and the plans’ fiduciaries were persuaded by certain recordkeepers to use their funds without researching or choosing other funds. He found the plaintiffs have sufficiently alleged that the defendants’ process for choosing and analyzing certain funds was flawed. 

NEXT: Fees and removing underperforming funds

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