University of Miami Faces Lawsuit Over 403(b) Plan Fees

Another lawsuit has been filed challenging fees for a university’s 403(b) plan—this one against the University of Miami.

Similar to other university lawsuits, the complaint says that because the plan is so large—nearly $1 billion in assets for the University of Miami—it has “tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds.”

The plaintiffs in the case allege that the university failed to investigate, examine and understand the real cost to the plan’s participants for administrative services, causing the plan and participants to pay unreasonable and excessive fees for investment and administrative services. Specifically, it says the university caused participants to pay an asset-based fee for administrative services that increased as the value of participant accounts rose, even though no additional services were being provided.

In addition, the lawsuit alleges that the University of Miami “selected and retained investment options for the plan that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.”

The plaintiffs have a particular disagreement with the university’s selection of the TIAA Traditional Annuity as the plan’s capital preservation fund. The complaint says it prohibits participants from redirecting their investment into other investment choices during employment except in 10 annual installments, “effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives change.” The lawsuit notes that the Traditional Annuity also prohibits participants from receiving a lump-sum distribution of the amount invested in it unless they pay a 2.5% surrender charge that it says bears no relationship to any reasonable risk or expense to which the fund is subject.

The plaintiffs suggest that one could reasonably infer from these circumstances alone that the university’s fiduciary decision-making process “was either flawed or badly executed.” But, they say, there is additional evidence, “such as incorrect reporting on mandatory Department of Labor [DOL] disclosures about the amount of administrative fees paid by [the] participants.”

The complaint says the purpose of the lawsuit is to enforce the University of Miami’s liability under the Employee Retirement Income Security Act (ERISA) to restore to the plan all losses resulting from each alleged breach of fiduciary duty. However, the plaintiffs point out early in the lawsuit that their action is similar—but narrower in scope—to a lawsuit filed against Duke University and call attention to the fact that a final class action settlement was recently approved in the Duke case. “Plaintiffs here seek similar remedies that were court-approved in the Duke case,” the complaint says.

A database of 403(b) plan litigation maintained by Cammack Retirement shows 20 universities have faced similar lawsuits. Six cases have been dismissed, and eight have been settled.