Another day, another “jumbo” university plan accused of not fulfilling its fiduciary duties, though this one has a couple of different twists.
Adding to the seven such lawsuits already brought by the St. Louis-based law firm of Schlichter, Bogard & Denton is a new one brought against the Emory University Retirement Plan and the Emory Healthcare, Inc. Retirement Savings and Matching Plan.
As has been the case in the other recent lawsuits in this segment, the Emory trustees have been accused of allowing “unreasonable expenses to be charged to participants for administration of the Plans, and retained high cost and poor-performing investments compared to available alternatives.”
What’s the Same?
The two plans involved had more than $3 billion in assets ($2.6 billion in one, $1.06 billion in the other, as of Dec. 31, 2014), and more than 40,000 participants across the two plans. The plaintiffs here, as they have in the other cases, not only cite many of the same sources for their conclusions, but challenge:
What’s Different?
In this particular case, the plaintiffs cite the plan’s investment policy statement (IPS), which they claim requires “that passive index funds be considered for efficient markets such as large capitalization equities, where the IPS recognizes the difficulty in obtaining performance above benchmarks. The IPS also requires consideration of fees and expense ratios when selecting Plan investment options.”
This particular lawsuit not only names the plan fiduciaries, it invokes the name and experience of Mary L. Cahill, Emory’s Vice President of Investments and Chief Investment Officer, who the lawsuit not only notes is “responsible for approving Plan investment selections,” but “has personal knowledge of retirement plan services provided to multi-billion dollar retirement plans.” The plaintiffs note that before joining Emory, Cahill was Deputy Chief Investment Officer at Xerox Corporation, “where she was responsible for developing, recommending and implementing investment alternatives for Xerox’s $12 billion in defined benefit and defined contribution plan assets,” going on to note that while Cahill was in that role “Xerox only used a single recordkeeper to provide recordkeeping and administrative services to the plan.”
They also point out that the Emory Clinic, Inc. Retirement Savings Plan is a 403(b) plan with $310.4 million in assets, and that in contrast to the plans in question here, that one uses only a single recordkeeper (Fidelity), “even though both Vanguard and Fidelity mutual fund options are included in that plan,” and that “despite the Emory Clinic’s 403(b) plan having significantly less assets than the Plans, that plan invested in lower-cost share classes than the Plans for many of the same investment options.”
The suit claims that if defendants had “monitored the compensation paid to the Plans’ recordkeepers and ensured that participants were only charged reasonable fees for administrative and recordkeeping services, Plan participants would not have lost in excess of $30 million of their retirement savings through unreasonable recordkeeping fees.”
Will this be the last such piece of litigation? Are you kidding?
Adding to the seven such lawsuits already brought by the St. Louis-based law firm of Schlichter, Bogard & Denton is a new one brought against the Emory University Retirement Plan and the Emory Healthcare, Inc. Retirement Savings and Matching Plan.
As has been the case in the other recent lawsuits in this segment, the Emory trustees have been accused of allowing “unreasonable expenses to be charged to participants for administration of the Plans, and retained high cost and poor-performing investments compared to available alternatives.”
What’s the Same?
The two plans involved had more than $3 billion in assets ($2.6 billion in one, $1.06 billion in the other, as of Dec. 31, 2014), and more than 40,000 participants across the two plans. The plaintiffs here, as they have in the other cases, not only cite many of the same sources for their conclusions, but challenge:
- duplicative investments “in every major asset class and investment style”;
- the use of three separate recordkeepers (Fidelity, TIAA-CREF and Vanguard);
- paying recordkeeping fees that were asset-based, rather than a per participant charge (since, the plaintiffs argue, “the cost of recordkeeping services depends on the number of participants, not on the amount of assets in the participant’s account”);
- forcing the use of the CREF stock Account and CREF money market account and imposing restrictions on those options;
- using mutual funds – and retail mutual funds at that (“identical in every respect to institutional share class funds, except for much higher fees”) – rather than collective investment funds or separately managed accounts;
- having (too?) many investment choices in the plan (111). Here plaintiffs charged that the “litany” of funds (rather than the “dizzying” array alleged in other suits) led to “decision paralysis” (the term employed in all of the other such lawsuits) by participants, while at the same time resulting in what plaintiffs saw as higher than reasonable fees; and
- offering active management solutions rather than passive ones.
What’s Different?
In this particular case, the plaintiffs cite the plan’s investment policy statement (IPS), which they claim requires “that passive index funds be considered for efficient markets such as large capitalization equities, where the IPS recognizes the difficulty in obtaining performance above benchmarks. The IPS also requires consideration of fees and expense ratios when selecting Plan investment options.”
This particular lawsuit not only names the plan fiduciaries, it invokes the name and experience of Mary L. Cahill, Emory’s Vice President of Investments and Chief Investment Officer, who the lawsuit not only notes is “responsible for approving Plan investment selections,” but “has personal knowledge of retirement plan services provided to multi-billion dollar retirement plans.” The plaintiffs note that before joining Emory, Cahill was Deputy Chief Investment Officer at Xerox Corporation, “where she was responsible for developing, recommending and implementing investment alternatives for Xerox’s $12 billion in defined benefit and defined contribution plan assets,” going on to note that while Cahill was in that role “Xerox only used a single recordkeeper to provide recordkeeping and administrative services to the plan.”
They also point out that the Emory Clinic, Inc. Retirement Savings Plan is a 403(b) plan with $310.4 million in assets, and that in contrast to the plans in question here, that one uses only a single recordkeeper (Fidelity), “even though both Vanguard and Fidelity mutual fund options are included in that plan,” and that “despite the Emory Clinic’s 403(b) plan having significantly less assets than the Plans, that plan invested in lower-cost share classes than the Plans for many of the same investment options.”
The suit claims that if defendants had “monitored the compensation paid to the Plans’ recordkeepers and ensured that participants were only charged reasonable fees for administrative and recordkeeping services, Plan participants would not have lost in excess of $30 million of their retirement savings through unreasonable recordkeeping fees.”
Will this be the last such piece of litigation? Are you kidding?
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