Court Finds in Favor of NYU in 403(b) Plans Lawsuit

A federal district court judge found that “while there were deficiencies in the Committee’s processes—including that several members displayed a concerning lack of knowledge relevant to the Committee’s mandate—plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result.”

In a lawsuit alleging imprudence in the management of two New York University (NYU) 403(b) plans, the university has emerged victorious.

In a previous decision, U.S. District Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York dismissed all duty of loyalty claims against NYU and left only a few duty of prudence claims to move forward. The lawsuit against NYU is one of at least 11 lawsuits against universities for mismanagement of 403(b) plans and is the first to go to trial.

The plaintiffs in the case had amended their original case to include as a defendant Cammack Retirement, adviser to the plans, but Forrest dismissed that and the original case went to trial.

The plaintiffs’ first claim is that the committee that oversees both NYU’s Faculty Plan and Medical Plan, for non-faculty staff, imprudently managed the selection and monitoring of recordkeeping vendors resulting in excessively high fees. According to plaintiffs, the committee could have reduced such fees by “consolidating” its use of two recordkeepers into one, and also by negotiating a lower overall rate.

The plaintiffs include in this claim arguments that the committee failed to prudently manage a request-for-proposal (RFP) process relating to recordkeeping vendors; failed to allow respondents to propose pricing for all plan assets (versus only non-annuity assets); and had predetermined that TIAA (already a recordkeeper for annuity assets) was the favored vendor.

The second claim is that the committee acted imprudently by failing to remove the TIAA Real Estate Account and the CREF Stock Account as investment options (thereby continuing to allow plaintiffs to invest in such funds). The plaintiffs assert that the committee used confusing and inappropriate financial benchmarks to review their performance and that these funds objectively underperformed, resulting in significant losses.

After careful review of the record, Forrest found that “while there were deficiencies in the Committee’s processes—including that several members displayed a concerning lack of knowledge relevant to the Committee’s mandate—plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result.”


According to the opinion, during the class period, the plans’ recordkeeping services were provided by TIAA and Vanguard. Additionally, Prudential also serviced the Medical Plan until that plan’s consolidation to a single recordkeeper in 2013—TIAA. Until this May, both Vanguard and TIAA provided services to the Faculty Plan: Vanguard, recordkeeping services for the Vanguard investment options, and TIAA, recordkeeping services for the TIAA investment options. In May, the Faculty Plan eliminated Vanguard as a recordkeeper and consolidated to TIAA as the single vendor.

Also, during the class period, Cammack provided the committee with quarterly updates on various financial aspects of the plans. Its reports were typically distributed to all committee members one week before a meeting. The evidence at trial supported receipt and review of these reports by committee members, and supports the committee having made decisions based on adequate investigation and independent decisionmaking, the opinion says.

In 2011, and annually thereafter, the committee approved an investment policy statement (IPS) that it used in connection with decisionmaking with respect to fund options. The IPS sets forth criteria for evaluating funds, how often funds are to be reviewed and Cammack’s responsibilities.

Forrest found several committee members displayed a surprising lack of in-depth knowledge concerning the financial aspects of managing a multi-billion-dollar pension portfolio and a lack of true appreciation for the significance of their role as fiduciaries. In a number of instances, one committee member appeared to believe it was sufficient for her to have relied rather blindly on Cammack’s expertise. Forrest said, as a matter of law, blind reliance is inappropriate.

However, there were committee members that Forrest found to be knowledgeable, such as Tina Surh, who served as NYU’s chief investment officer (CIO) and as a committee member from 2010 through 2014. “Surh appeared to be very knowledgeable in the area of investing generally,” the opinion says.

“While the Court finds the level of involvement and seriousness with which several Committee members treated their fiduciary duty troubling, it does not find that this rose to a level of failure to fulfill fiduciary obligations. Between Cammack’s advice and the guidance of the more well-equipped Committee members (such as Surh), the Court is persuaded that the Committee performed its role adequately,” Forrest wrote in her opinion.

Forrest also found that the evidence does not support a failure or loss with regard to recordkeeping fees or with regard to the two plan investment options at issue in the case.


According to the plaintiffs, actions or inactions by the plans committee resulted in an overpayment by the plans in the amount of $25,818,880 for the Faculty Plan and $17,074,702 for the Medical Plan. But Forrest found that the plaintiffs failed to prove that the committee acted imprudently with regard to recordkeeping fees. She said the evidence supports that, during the class period, the committee prudently managed its recordkeepers: It ran prudent RFP processes, was able to obtain lower fees for the Faculty Plan when consolidation was impractical, and it consolidated recordkeepers for the Medical Plan (and, this year, the Faculty Plan). In addition, Forrest found plaintiffs have not proven that the allegedly imprudent actions/inactions resulted in losses.

Forrest agreed with NYU’s argument that consolidating recordkeepers for the Faculty Plan was not possible before the time it actually did so and that RFPs were based on the appropriate amount of assets, based on evidence that no other recordkeeper could handle administration of TIAA individual annuities and that NYU was undergoing several systems updates that meant consolidation of recordkeepers would result in participant disruption.

Forrest also said, “The record at trial persuasively demonstrated that NYU had particular needs, a particular technological environment, and infrastructure that made the frequency of its RFP process during the Class Period adequate. In addition, plaintiffs ignore that, over the course of several years, NYU’s recordkeeping fees consistently decreased as NYU obtained repeated rate reductions.”

According to the opinion, as of 2018, both plans’ fees for the TIAA assets decreased substantially—from 19.9 basis points (bps) in 2008 to 3.0 basis points for the Faculty Plan and to 4.0 basis points for the Medical Plan. Vanguard’s fees for the Faculty Plan also decreased, from 10.0 to 6.0 basis points.

Regarding flat per-participant fees and revenue sharing, Forrest said a witness from Cammack testified credibly that, with regard to Fidelity’s per-participant quote, the total fees actually worked out to twice as much as a 15-basis-point arrangement would have cost in the first year. He testified that, in 2009/2010, when vendors began offering per participant flat dollar annual fees, their quotes were often “in excess of the amount generated under the basis point model.”

Forrest also found the committee made due consideration of the appropriate pros and cons and rejection of using a flat per-participant model. For instance, the committee considered a number of issues related to paying for services on a flat per-participant basis, including whether they thought the arrangement would be fair, given that a participant with a large account balance might pay the same as a participant with a relatively small account balance. The committee also inquired as to whether TIAA could charge for recordkeeping services on a flat per-participant fee basis, to which TIAA explained that flat dollar fees cannot be assessed against the TIAA and CREF annuity account balances in the plans. “Accordingly, the Court is not persuaded that a revenue-sharing model itself or the Committee’s choice to employ that model here was imprudent,” Forrest wrote.

Regarding claims that the TIAA Real Estate Account was imprudent, the opinion notes that it is an unusual fund because it invests in actual real estate properties. “This fund provides investors with an opportunity to participate in investments typically only available to institutional investors; it is therefore a valuable diversifying element of a retirement portfolio. Ten to twenty percent of this fund’s holdings are in cash or other short-term securities and short-term higher quality liquid investments that are easily converted to cash. This provides a level of liquidity that would be otherwise difficult to achieve in a real estate portfolio, and ensures that the Account can meet participant redemption requests, purchase or improve properties, or cover other expense needs,” the opinion says.

However, the plaintiffs contend that the fund’s cash holdings create a “drag” on overall return. Forrest found that NYU’s expert testified credibly that “there’s no doubt that REITs [real estate investment trusts] are riskier” than the TIAA Real Estate Account because REITs lack cash, which means they may have to operate using leverage or debt as part of their capital structure. Further, Surh testified that the TIAA Real Estate Account is a “really unique and useful instrument,” as a strategic asset and stabilizer, because it is not highly correlated to the equities markets. The fund offers diversification that can lead to a better overall return for a participant.

Forrest noted that, while the benchmarks for the TIAA Real Estate Account did change during the class eriod, the mere fact that the committee, Cammack, and TIAA itself changed benchmarks during the relevant time period does not indicate that the committee acted imprudently, or that the fund was imprudently included as an option. “Indeed, one of the factors that makes it a useful product—the diversification it offers vis-à-vis its unique holdings—also makes it difficult to benchmark. There simply are not similar funds in the market. The fact that the benchmarks shifted over time indicates that the Committee was performing its review function appropriately—it carefully considered the benchmarks being used, whether they were appropriate, and whether a more apt benchmark existed, and it altered the benchmarks when a more useful one was proffered. These shifts in benchmarks are not evidence of imprudence,” she wrote in her opinion.

Forrest also noted that, in contrast to the NYU expert’s analysis on the fund’s performance, the plaintiffs’ expert failed to adjust for cash and compared the fund with a REIT. “Accordingly, plaintiffs have not demonstrated that the TIAA Real Estate Account underperformed so significantly that the Committee was imprudent for failing to remove it as an option,” she said.

Forrest made similar findings about the CREF Stock Account.