Fiduciaries Lawsuit against the University of Pennsylvania Dismissed
Last year, lawsuits were brought against the fiduciaries of the 403(b) plans of a number of major colleges and universities. Among the defendants were some of the country’s most prestigious institutions, including Columbia, Johns Hopkins and Vanderbilt. Very generally, these lawsuits allege that the 403(b) plans of these institutions are paying fees that are too high, include underperforming investments and offer cumbersome investment menus that are confusing to participants.
One such suit was brought against the 403(b) plan sponsored by the University of Pennsylvania. This plan has about $4 billion in assets and 78 investment choices offered through TIAA and Vanguard.
This past September, the judge granted the University’s motion to dismiss, which means this case will not go to trial. A court will grant a defendant’s motion to dismiss only if it decides that the plaintiffs cannot prevail on their merits, even if they prove all the facts they are alleging.
Some brief highlights of the court’s lengthy opinion:
- The judge rejected the argument that fees are too high by concluding that plan fiduciaries must balance the need to provide benefits to participants against defraying reasonable costs. The court noted that fiduciaries are not obligated under ERISA to always select the cheapest option.
- The court’s reasoning is slightly unclear regarding its decision to reject plaintiffs’ claims that fiduciaries failed to act prudently with regard to the investment offerings. This allegation was based on the fact that 60 percent of the funds in the plan’s lineup were underperforming their respective benchmarks. Curiously, the judge noted that underperformance does not create a claim under ERISA. The court concluded that the fiduciaries have fulfilled their duty to act prudently if the investments selected were reasonable based on the information available to the fiduciaries at the time the decisions were made. This seems to run contrary to the Supreme Court’s decision in Tibble which imposes on fiduciaries a continuous duty to monitor.
- The court rejected the argument that revenue sharing paid to TIAA and Vanguard was a prohibited transaction under ERISA. Here, the judge noted that ERISA does not contain an explicit prohibition against revenue sharing.