Compliance

Princeton Retirement Plan Faces ERISA Challenge

The university is just the latest to face an ERISA class action lawsuit filed by one of its employees, alleging imprudence in the management of retirement planning benefits. 

By John Manganaro editors@strategic-i.com | May 25, 2017
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A new lawsuit filed in the U.S. District Court for the District of New Jersey, Nicolas vs. Trustees of Princeton University, will make for some very familiar reading for retirement industry professionals.

The suit was filed by attorneys with Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger & Montague PC—two firms behind some of the best-known examples of Employee Retirement Income Security Act (ERISA) litigation. Fidelity, Aon Hewitt, Charles Schwab, State Farm, Voya, Xerox and TIAA have all been named in suits filed by the firms in recent years.

This latest lawsuit includes broad swaths of text borrowed directly from those previous challenges. Here is how the classic claim is leveled: “Instead of leveraging the plans’ massive bargaining power to benefit participants and beneficiaries, defendant failed to investigate, examine and understand the real cost to plans’ participants for administrative services, thereby causing the plans to pay unreasonable and excessive fees for investment and administrative services.”

Specifically, plaintiffs suggest Princeton inappropriately “agreed to pay an asset-based fee for administrative services that increased as the value of his participant account rose, even though no additional services were being provided.” Further, the suit contends, Princeton “selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.”

The retirement programs of nationally known U.S. universities have increasingly become the targets of such ERISA claims. Broadly the lawsuits include many of the same disputes and seek similar forms of damages and relief, arguing that these retirement programs should look more like best-in-class 401(k) plans run by private sector employers. However there are many who argue this perception is fundamentally flawed, in that 403(b) retirement plans offered to college administrators and faculty will be serving potentially quite a different purpose from the perspective of the whole benefits package compared with a corporate 401(k).

NEXT: Reading into the Princeton lawsuit