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Back to School for ERISA Fiduciary Claims: How to Prepare for This Trend in University Litigation

Authors: Robert S. Ellerbrock, III (Birmingham), Lisa Karen Atkins (Birmingham)

Published Date: August 22, 2017

In the past 10 years, there have been an increasing number of lawsuits asserting Employee Retirement Income Security Act of 1974 (ERISA) fiduciary claims. These have been accompanied by an increased focus by the Department of Labor (DOL) on fiduciary matters.  This trend began with lawsuits against 401(k) plan fiduciaries alleging poor investment options and has evolved into lawsuits challenging not only the performance of investments offered under the plan, but also the fees associated with those investments. In addition, almost all of the more recent lawsuits examine not only the expenses associated with the investments, but all of the fees that the plan pays. They also allege that plan participants suffered losses to the value of their retirement savings.

Why should your institution care about lawsuits and governmental scrutiny of defined contribution retirement plans? 

The lawsuits involve defined contribution plans—think 403(b)s rather than pensions. A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools; employees of some tax-exempt organizations, such as colleges and universities; and certain ministers. Until late 2016, most of the lawsuits involved 401(k) plans and were against private employers. However in 2016, 12 major universities were sued, with the plaintiffs using the same theories that were previously used in the 401(k) lawsuits. In fact, a lawsuit was filed against another university as recently as last month. Generally, the lawsuits claimed the following:

  • Excessive fees for recordkeeping and administration of the plans
  • Too many investment options, many of which were duplicative, unnecessary, and confusing to participants, and contained obscure fees
  • The use of retail instead of institutional mutual funds (retail funds typically have much higher fees)
  • Asset-based recordkeeping fees funded by revenue sharing
  • Failure to adequately monitor the plans

For governmental entities such as states, having a defined contribution retirement plan option, such as a 401(a), 457, or 401(k) plan, could create additional exposure.

Key Takeaways

These lawsuits are in their very early stages, and we are not certain how they will look as they work their way through the courts. We do know that in May of 2017, two of the initial lawsuits were allowed to move forward. While we do not know how this litigation will be decided, these considerations can help institutions be prepared.  Employers must keep in mind that anyone who is acting on behalf of a plan or is responsible for a plan can have personal liability.  The first step institutions should take is to ensure that there is periodic review of plan procedures. Second, institutions should also consider training employees with plan responsibilities and in-house counsel, if the institution has one, to ensure a firm understanding of the institution’s responsibilities relating to its retirement plans. Another important takeaway is that plan sponsors must ensure active monitoring of their plans, including investment options and fees associated with the plan.

Based on these recent developments, it appears as though institutions of higher learning will become an even more attractive target for these types of actions.

Robert S. Ellerbrock, III  (Birmingham)

Robert S. Ellerbrock, III
Bob Ellerbrock focuses his practice on employee benefits and ERISA.  He regularly  advises clients concerning qualified retirement plans (401(k), defined benefit, 403(b)), non-qualified plans, fringe benefits, health and welfare benefits, Affordable Care Act compliance, and executive compensation issues. With experience in the retirement plan industry prior to practicing law, Bob draws on his knowledge counseling clients in the design and implementation of all types of employee benefit plans.

Lisa Karen Atkins  (Birmingham)

Lisa Karen Atkins
Lisa has over 20 years' experience defending employers ranging from public and private colleges, universities, and technology centers to clients in international tire and automobile manufacturing, steel pipe, carbon black, logistics, security and other safety-sensitive industries, child care, food services, property management, automated retail, and small and family-owned businesses. She represents clients in litigation. EEOC charges, and other state and federal agency proceedings and provides...