New York University is facing a class-action lawsuit after allegedly allowing a number of participants in its retirement plans to pay millions of dollars in excessive fees. The Massachusetts Institute of Technology and Yale are also facing similar lawsuits as all three universities have been accused of breaching the Employee Retirement Income Security Act.
Here are the details of the lawsuit and how the university intends to handle it.
What is the Employee Retirement Income Security Act?
The Employee Retirement Income Security Act requires institutions to act in the best interest of participants and plan beneficiaries by requiring employers to provide them with information about their plan regularly and free of charge.
ERISA also gives participants the right to sue for benefits and breaches of fiduciary duty.
The Complaint Against NYU
The complaint against NYU is over two 403(b) plans that cover faculty, research administration and the medical school. A 403(b) plan is similar to 401(k), but it is offered by public schools and nonprofit institutions, such as universities.
A number of these 403(b) plan participants felt the university breached ERISA by not looking out for the interests of its retired employees and chose costly retirement plans. Specifically, the plaintiffs allege that they overpaid for administrative fees in the plans including record-keeping.
In addition, the plaintiff also claims that, instead of using its bargaining power to cut costs, the university offered expensive, poor-performing investment options that reduced the retirement assets of employees and retirees.
The plaintiff further alleges that the university did not use its enormous leverage to negotiate cheaper funds, as the faculty and medical school plans held a combined $4.2 billion in assets for 24,000 participants at the end of 2014.
Who is representing the employees and retirees?
A Missouri law firm, Schlichter, Bogard and Denton, will represent the employees of all three universities in their respective suits. Jerome Schlichter, renowned in the world of retirement plan litigation, is the lead attorney spearheading the cases. He has filed more than 20 similar lawsuits on behalf of workers, and last year he won a unanimous decision from the Supreme Court which ruled that companies had an ongoing duty to monitor employee investment options and to terminate “imprudent ones.”
What does NYU have to say about the lawsuit?
NYU spokesman Matt Nagel said the university disputes the suit’s claims, as it takes seriously the welfare and dignified retirement of its faculty and employees. In addition, Nagel said the plans offered by the university are selected after careful consideration.
“Beyond that, we would note that, first, NYU’s plans have comparatively low fees; second, decisions about our retirement plan choices are influenced by feedback from our faculty and other employees; and, third, that the named plaintiffs in this case notably include several faculty members who recently lost unrelated court cases they brought against NYU,” Nagel said.
In addition, university spokesman John Beckman said in a statement to the New York Times that NYU will “litigate this case vigorously and expect to prevail.”
A version of this article appeared in the Sunday, August 28 print edition. Email Lexi Faunce at [email protected]