Brown University Only Partially Successful in 403(b) Lawsuit
A federal judge in Rhode Island recently permitted several claims against Brown University to proceed in a lawsuit alleging that the university and its fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA), by mismanaging Brown’s defined contribution plans. This decision follows the recent decision in a similar class action lawsuit against Northwestern University (see blog post here) in which a federal judge granted Northwestern a complete victory in its motion to dismiss.
Unlike in that decision, the court in Short v. Brown University allowed plaintiffs to proceed with claims relating to record-keeping services, including engaging more than one record-keeper, incurring excessive administrative fees and failing to conduct a competitive record-keeping bidding process. Of note, the court indicated that whether particular record-keeping fees are excessive involves questions of fact that cannot be resolved on a motion to dismiss. If other courts were to adopt that line of reasoning, a plaintiff who alleged that any level of fees was excessive could survive a motion to dismiss. The court also permitted plaintiffs to advance claims that Brown chose more expensive funds with poor historical performance, including the CREF Stock Account and the TIAA Real Estate Account.
The court dismissed the plaintiffs’ claims that Brown acted imprudently by offering investment options with multiple layers of fees and using revenue sharing and asset-based fees. Like other courts that have ruled on class action lawsuits against fiduciaries of university defined contribution retirement plans, the Brown court also dismissed the plaintiffs’ claim that Brown acted imprudently by including too many investment choices in its lineup.