Compliance

Most Claims Dismissed in NYU 403(b) Plans Suit

A federal district court judge only moved forward certain claims of breaches of fiduciary duty of prudence under the Employee Retirement Income Security Act (ERISA).

By Rebecca Moore editors@strategic-i.com | August 29, 2017
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In a lawsuit regarding two 403(b) plans offered by New York University, a federal judge has found that while plaintiffs have adequately pleaded certain claims, a number of the bases upon which they rely as support for other claims could not—even if proven—result in a favorable judgment.

U.S. District Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York only moved forward certain claims of breaches of fiduciary duty of prudence under the Employee Retirement Income Security Act (ERISA).

The complaint, filed last year, alleges that the university breached its fiduciary duties by selecting and retaining high-cost and poor performing investment options compared to available alternatives. In addition, the complaint states that in contrast to actions by prudent fiduciaries of other similarly sized defined contribution plans, the university used multiple recordkeepers, rather than a single provider.

As of December 31, 2014, the NYU’s Faculty Plan offered 103 total investment options—25 TIAA-CREF investment options and 78 Vanguard options. As of that same date, NYU’s Medical Plan offered 11 TIAA-CREF investment options and 73 Vanguard options, for a total of 84 options. Both plans offered the TIAA Traditional Annuity, which is a fixed annuity contract that returns a contractually specified minimum interest rate. TIAA-CREF requires plans that offer the TIAA Traditional Annuity to also offer the CREF Stock and Money Market accounts and to use TIAA as a recordkeeper for its proprietary products.

Both TIAA-CREF and Vanguard are recordkeepers for the Faculty Plan, and NYU did not consolidate the Medical Plan to a single recordkeeper (TIAA-CREF) until late 2012. Plaintiffs in the case point to three other plans, as well as industry reports, to support their assertions that many other plans have implemented systems with single recordkeepers.

Forrest dismissed all of the plaintiffs’ loyalty claims. Forrest found that the plaintiffs failed to plead sufficient facts to support the loyalty-based claims. “A plaintiff does not adequately plead a claim simply by making a conclusory assertion that a defendant failed to act ‘“for the exclusive purpose of’ providing benefits to participants and defraying reasonable administration expenses; instead, to implicate the concept of ‘loyalty,’ a plaintiff must allege plausible facts supporting an inference that the defendant acted for the purpose of providing benefits to itself or someone else,” she wrote in her opinion. She noted that plaintiffs’ allegations are principally based on NYU purportedly allowing TIAA-CREF and Vanguard to include their proprietary investments in the plans without considering potential conflicts, which favored TIAA-CREF’s and Vanguard’s own interests through the provision of allegedly bundled services. “As pled, these allegations do not include facts suggesting that defendant entered into the transaction for the purpose of (rather than merely having the effect of) benefitting TIAA-CREF,” Forrest wrote in her opinion.

The plaintiffs in the case relied on the 8th U.S. Circuit Court of Appeals decision in Braden v. Wal-Mart Stores, Inc. But, Forrest noted that the Braden plaintiffs—unlike the current plaintiffs—alleged facts indicating that the defendant had failed to disclose material information regarding the funds’ performance and fees, including the fact that funds purportedly made revenue sharing payments (of concealed amounts) to the trustee in exchange for inclusion in the plan.

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