Plaintiff Asks Court to Amend NYU 403(b) Plans Lawsuit Decision

While not disagreeing with a federal court judge's decision, the plaintiff says the judge's findings about certain plan committee members warrants her ordering them to be removed.

The plaintiff in a lawsuit over New York University’s 403(b) plans has filed a motion to amend the court’s decision by ordering the removal of two plan committee members.

In her decision, U.S. District Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York said “plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result.” However, she also noted “deficiencies in the Committee’s processes—including that several members displayed a concerning lack of knowledge relevant to the Committee’s mandate.”

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In the argument to support the motion to amend the court’s decision, the plaintiff says the court’s factual findings regarding two committee members point to the unmistakable conclusion that they repeatedly failed to exercise the level of “care, skill, prudence, and diligence” that an objectively prudent fiduciary responsible for a $6 billion retirement plan would have used, and are unfit to serve in that capacity going forward.

“Thus, to protect the Plans’ participants from the significant risk of future losses if imprudent and unqualified fiduciaries remain on the Committee, the Court should supplement its findings to order that [they] be removed and barred from serving as fiduciaries to the Plans, and amend the judgment accordingly,” the court document says.

Citing other court opinions, the plaintiff argues that if a fiduciary is found to be in breach of its duties, the Employee Retirement Income Security Act (ERISA) grants courts “wide discretion in fashioning equitable relief to protect the rights of pension fund beneficiaries.” Thus, “a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed” by ERISA is liable not only for any monetary losses caused by the breach, but also “shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.” Removal is appropriate when the fiduciaries have engaged in “repeated or substantial violations of [their] responsibilities.”

The document goes on to say that a finding of bad faith or disloyal conduct is not required for removal. Similarly, a monetary loss to the plan is not a prerequisite to removal. The proper inquiry is merely whether the fiduciary’s “conduct has violated the prudence standards of” ERISA.

The plaintiff points out that Forrest specifically found that one of the committee members does not have the depth of knowledge appropriate to oversee a plan the size of the NYU Faculty and Medical

Plans and “displayed a surprising lack of in-depth knowledge concerning the financial aspects of managing a multi-billion-dollar pension portfolio.” Forrest also found that in a number of instances, the committee member “appeared to believe it was sufficient for her to have relied rather blindly on the plan adviser’s expertise,” which was “inappropriate as a matter of law.” The plaintiff argued that this committee member’s ignorance of financial matters shows that she simply lacks the “skill” required by ERISA to oversee a multi-billion dollar defined-contribution portfolio.

As for the other committee member the plaintiff is asking to be removed, Forrest found she “failed to demonstrate a satisfactory understanding of … her role as a fiduciary” and “did not consider herself a fiduciary.” The committee member testified that she does not “review the plan documents” because her staff reviews them, yet the staff member herself “failed to demonstrate a firm grasp on these documents.”

Forrest found the committee member to be “unfamiliar with basic concepts relating to the Plans, such as who fulfilled the role of administrator for the Faculty Plan,” that she did not “know enough about variable annuities to be able to comment on whether they should be in these plans,” and “could not recall whether there were ‘specific underperformance metrics or thresholds that have to be triggered for a fund to be put on the watch list.’” The committee member’s excuse for her inability to remember plan details—that she has a “big job” in human resources—“suggested that [she] does not view herself as having adequate time to serve effectively on the Committee,” Forrest said.

The plaintiff concluded that this committee member has demonstrated that she is either unwilling or unable to devote adequate time and effort to serve effectively on the committee. “Removing [her] will further ERISA’s purposes of protecting the Plans’ participants against the risk of loss due to imprudent fiduciary conduct,” the court document says.