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NYU Hit with Second Excessive Fee Suit

By Ted Godbout • November 20, 2017 • 0 Comments
If at first you don’t succeed, try, try again seems to be the motto used in a new class action lawsuit filed against New York University alleging breach of fiduciary duties for excessive plan fees in the school’s retirement plans.

This new, 129-page filing (Sacerdote v. NYU Langone Hosps., S.D.N.Y., No. 1:17-cv-08834, filed 11/13/17) from the Schlichter Bogard & Denton law firm has been expanded to include the university’s hospital system, school of medicine, the retirement plan committee and 21 named individuals.

Similar to claims made in 2016, the suit alleges that employees paid excessive recordkeeping fees in addition to selecting and imprudently retaining funds which the plaintiffs claim have underperformed for years. Moreover, the complaint alleges that the use of multiple recordkeepers caused plan participants to pay duplicative, excessive and unreasonable fees for plan recordkeeping services.

While some of the claims in the first suit were dismissed last August, a federal judge allowed allegations involving excessive recordkeeping fees and failure to prudently monitor plan investment options by continuing to offer funds with high fees and poor performance.

According to the new complaint, if the defendants had satisfied their fiduciary obligations, they would not have:

  • allowed the plans to continue to pay excessive administrative fees;

  • maintained an “inefficient” multi-recordkeeper structure;

  • continued to include more than 100 investment options, including duplicative funds in numerous investment styles and higher-cost retail share classes for which an identical lower-cost version was available; and

  • retained investment options in the plans despite a track record of underperformance.

Moreover, the suit argues that, instead of using the plans’ bargaining power to reduce expenses and exercising independent judgment to determine what investments to include in the plans, defendants “squandered that leverage.” According to the filing, defendants allegedly allowed the plans’ service provider to dictate the plans’ investment lineup, to link its recordkeeping services to the placement of investment products in the plans, and to collect unlimited asset-based compensation from their own proprietary products.

“By allowing the [service provider] to mandate the inclusion of its [stock and money market account] in the plans, and to require that it provide recordkeeping for its proprietary options, the defendants committed the plans to an imprudent arrangement in which certain investments could not be removed from the plan even if they were no longer prudent investments, and prevented the plans from using alternative recordkeepers who could provide superior services at a lower cost,” the complaint states.

The two lawsuits against NYU are pending before the U.S. District Court for the Southern District of New York.

Over the past 18 months, more than a dozen universities have found themselves in the crosshairs of class action lawsuits regarding the fees, investment menus and recordkeeping structures of their retirement plans, with a varied judicial response to what have been largely identical claims, albeit in different jurisdictions and somewhat different plan designs. Included among the schools targeted are Cornell, Northwestern, Columbia, University of Southern California, Emory, Duke, MIT and Yale.

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