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Georgetown University Defeats Retirement Plan Fee Litigation and “If a Cat Were a Dog, It Would Bark”

Recently, the US District Court for the District of Columbia dismissed a proposed class-action lawsuit brought by former Georgetown employees under the Employee Retirement Income Security Act of 1974 (ERISA) over fees and investments in its two retirement plans. Plaintiffs alleged that Georgetown breached its fiduciary duty of prudence under ERISA by selecting and retaining investment options with excessive administrative fees and expenses charged to the plans, and unnecessarily retained three recordkeepers rather than one.

The court dismissed most of the claims on the grounds that plaintiffs had not plead sufficient facts showing that they had individually suffered an injury. Because they challenged defined contribution plans (as opposed to defined benefit plans), the plaintiffs had to plead facts showing how their individual plan accounts were harmed. In this case, the named plaintiffs had not invested in the challenged funds, or the challenged fund had actually outperformed other funds, or, in the case of the early withdrawal penalty from the annuity fund, the penalty had been properly disclosed and neither plaintiff had attempted to withdrawal funds – thereby suffering no injury. Moreover, in dismissing the allegations that the Plans included annuities that limited participants’ access to their contributed funds, the court rejoined, “[i]f a cat were a dog, it could bark. If a retirement plan were not based on long-term investments in annuities, its assets would be more immediately accessed by plan participants.” As to another fund, the court rejected the claim that the fiduciaries should be liable for the mere alleged underperformance of the fund, noting that “ERISA does not provide a cause of action for ‘underperforming funds.” Nor is a fiduciary required to select the best performing fund. A fiduciary must only discharge their duties with care, skill, prudence, and diligence under the circumstances when they make their decisions.

The court noted that ERISA’s fiduciary standard of prudence requires only that a plan fiduciary use appropriate methods to investigate the merits of the challenged investments and to structure the investments related to the challenged transactions. By that standard, the court said, the plaintiffs failed to show any factual basis for finding that Georgetown breached its fiduciary duty. It noted that the plaintiffs’ allegations targeted the “fundamental structures” of Georgetown’s retirement plans, not the fiduciary prudence of the plan trustees.

Georgetown is just one of several prestigious universities to be sued over the management of its retirement plans since a wave of similar suits began in 2016. It is the fifth school to beat allegations that it mismanaged its retirement plans in violation of ERISA, following New York University, Northwestern University, the University of Pennsylvania and Washington University in St. Louis. Thus far, the University of Chicago has settled similar claims for $6.5 million, and Duke University did the same for an undisclosed amount.

While these suits focus on 403(b) retirement plans, similar claims are also seen in the context of 401(k) plans. The recent university fee litigation, including the suit against Georgetown, continue to evolve the landscape of ERISA litigation and the theories brought by plaintiffs for breach of fiduciary duty. It underscores the importance of plan fiduciaries’ duty to regularly meet, keep apprised of retirement plan operations, and document a deliberative and thoughtful decision-making process.

© 2019 McDermott Will & Emery

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About this Author

J. Christian Nemeth, McDermott Will, business torts lawyer, aviation matters attorney
Partner

J. Christian (Chris) Nemeth provides legal counsel on complex commercial litigation, including contract disputes, shareholder derivative actions, financial and banking matters, business torts, aviation matters, insurance cases, white-collar criminal matters and health care litigation.

Chris represents clients in courts at the state and federal levels across the country, and has successfully tried cases involving a wide range of matters. He also arbitrates cases in domestic and international forums.

Chris has extensive...

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Chris Scheithauer Attorney McDermott Law FIrm
Partner

Chris C. Scheithauer represents clients on civil litigation matters, with a focus on class action employee benefit litigation and counseling under the Employee Retirement Income Security Act of 1974 (ERISA), and other employment litigation and advice.

Chris serves as the Co-Chair of McDermott’s National ERISA Litigation Team.

Chris’ ERISA practice involves representing employers, plan fiduciaries and trustees in litigation matters concerning employee benefit plans. He regularly represents companies and their ERISA plans in defending claims for wrongful denial of employee benefits, such as long-term disability benefits. Chris also defends companies, officers and directors, and other alleged ERISA plan fiduciaries against claims for breach of fiduciary duties in employee stock ownership plan (ESOP) and 401(k) class actions regarding company stock declines, claims for excessive investment and administrative fees, or changes to pension plans. Chris is a contributing author to the Employee Benefits Law treatise, published by the American Bar Association (ABA)’s Employee Benefits Subcommittee on ERISA.

Chris has represented clients such as Northrop Grumman Corporation, State Street Bank & Trust, CMS Energy, Bank of America 401(k) Plan, AECOM, Walt Disney Parks and Resorts, Countrywide Financial Corporation 401(k) Plan, the Securities Industry and Financial Markets Association, and Yahoo, among others.

Chris’ employment practice involves representing employers in defending individual and class action claims pertaining to wage and hour disputes, employment discrimination and harassment (under California and federal law), wrongful termination, breach of employment contract, unfair competition and misappropriation of trade secrets. He has litigated class actions involving wage and hour claims under the Fair Labor Standards Act, as well as California’s Wage Orders.

Chris represents clients in litigation in state and federal courts, as well as in administrative proceedings and investigations before such agencies as the US Department of Labor, the US Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, and the California Department of Industrial Relations/Division of Labor Standards Enforcement. Chris has previously served on the Board of Directors of the Orange County Federal Bar Association.

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Joseph K. Urwitz, Employee Benefits Lawyer, McDermott Will Emery Law Firm
Associate

Joseph K. Urwitz is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Boston office.  He focuses his practice on employee benefits, executive compensation and ERISA matters.  Joe’s experience includes ERISA fiduciary issues, benefits issues faced by non-profit entities, executive compensation and deferred compensation arrangements, equity award plan design, employment and severance arrangements, qualified plan work and employee benefits matters arising in mergers and acquisitions.

Joe received his J.D. from the University of Chicago Law School...

617-535-3854
Associate

Erin Steele focuses her practice on employee benefits and executive compensation. She has experience working on matters related to employee stock ownership plans (ESOPs), code section 401(k) plans, health and welfare arrangements, and Employee Retirement Income Security Act of 1974 (ERISA) litigation. She has also assisted in employee benefits matters as part of corporate transactional due diligence work.

During law school, Erin served as an ERISA litigation intern at the US Department of Labor Office of the Solicitor, Division of Plan Benefits Security, and as a...

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