A federal court judge in Hartford, Conn., has dismissed a few complaints in a lawsuit alleging ERISA violations in Yale University's 403(b) plan, while rejecting most of the university's petition that all complaints be thrown out.
The split decision on the motion by the New Haven, Conn.-based university to dismiss is the latest procedural action in a series of ERISA-based lawsuits against large private universities and their 403(b) plans filed by the law firm Schlichter Bogard & Denton. In late February, for example, a U.S. District Court judge in New York rejected New York University's request for summary judgment in a complaint against two NYU 403(b) plans filed by the Schlichter law firm.
In the Yale University case, U.S. District Judge Alvin W. Thompson issued a 40-page opinion last Friday agreeing with Yale on some issues but disagreeing with most of the university's arguments that the participants in the 403(b) plan failed to properly file complaints based on the Federal Rules of Civil Procedure and failed to file the lawsuit within a statute of limitations.
"The court concludes that the defendants have not shown that the plaintiffs' claims are time-barred," the judge wrote in the case of Vellali et al. vs. Yale University et al. The plaintiffs are seeking class-action status.
The participants filed a series of complaints covering, among other things, alleged poor performance of certain investment products, excessive fees, reliance on high-priced investment options when less expensive ones were available, and failure to monitor investments and record-keeping costs.
"When deciding a motion to dismiss ... the court must accept as true all factual allegations in the complaint and must draw inferences in a light most favorable to the plaintiff," Mr. Thompson wrote in his decision. Citing legal precedent, he noted plaintiffs must offer "more than labels and conclusions" and must offer more than a "formulaic recitation of the elements" of their complaint.
A key issue in evaluating a motion to dismiss, he added, is whether plaintiffs make a plausible presentation to allow them to offer evidence to support their claims.
Thus, the judge ruled the plaintiffs made a plausible claim that Yale plan executives "breached their duty of prudence" in establishing a bundling arrangement with TIAA-CREF, the plan's record keeper, "under which they abdicated their responsibility to monitor and improve imprudent investments and reduce exorbitant fees."
The judge also ruled the plaintiffs "plausibly" stated a claim for breach of duty of prudence "based on unreasonably high administrative fees."
However, the judge agreed with the university's request for dismissal of the allegation that plan executives violated their ERISA duty of prudence by offering too many investment options. "Simply listing the number of investments in various asset categories does not mean that any particular investment is unreasonable in and of itself or in relation to other investments," he wrote.
Robert Steyer is a reporter for InvestmentNews' sister publication Pensions&Investments.