Judge dismisses parts of Yale 403(b) suit, lets others stand

Court agrees with university that offering many investment options is not a violation of ERISA

Apr 4, 2018 @ 3:56 pm

By Robert Steyer

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.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


Geoffrey Brown: What's top of mind at NAPFA?

NAPFA is looking ahead at the rest of 2018 and has a broad agenda that includes improving diversity in the advice industry. What's next? Geoffrey Brown offers his insights.

Latest news & opinion

10 fastest-growing IBDs

These independent broker-dealers saw the biggest percentage gains in their revenue in 2017.

The unique nature of working with celebrity clients

Athletes and entertainers are just like everyone else — aside from complex tax issues, a lack of financial savvy and a need for prenups

Top 10 IBDs ranked by revenue

These independent broker dealers generated the most revenues in 2017.

8 podcasts advisers listen to when they aren't working

Listening to podcasts for the fun of it.

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print