NYU lawsuit becomes first 403(b) fee case to go to trial

A lawsuit charging New York University with charging excessive fees in its retirement plan is heading to trial, after a federal judge on Thursday denied the university’s motion for summary judgment in the case.

However, the judge on Friday entirely dismissed a second, similar lawsuit against the NYU School of Medicine, its retirement-plan investment adviser, Cammack LaRhette Advisors, and other defendants. That suit was brought by the same law firm, Schlichter Bogard & Denton, in November 2017.

Judge Katherine B. Forrest of the U.S. District Court of the Southern District of New York said in an order that the suit against the School of Medicine and other defendants is “a blatant attempt to replead an existing action.” The judge was alluding to her earlier dismissal of several allegations in the first lawsuit.

Around a dozen prominent universities, including NYU, were sued in August 2016 over allegations that their 403(b) plans charged excessive fees that eroded employees’ retirement savings. The NYU case — Sacerdote et al v. New York University — is the first of those lawsuits to go to trial, which is expected to start in April.

“We’re pleased that this case on behalf of NYU employees and retirees will now go to trial,” said Jerome Schlichter, the lead attorney representing plaintiffs. “We look forward to presenting the facts regarding how the plan was handled and the impact it had on the participants.”

Ms. Forrest dismissed some of the lawsuit’s allegations in August, such as one claiming the university was imprudent in offering higher-cost retail share classes of investment funds instead of lower-cost institutional ones.

However, others, like claims related to excessive fees for record-keeping services, were allowed to stand.

“Much of this case has been dismissed previously,” said NYU spokesman John Beckman. “We would have preferred it be dismissed in its entirety, because it is a baseless suit. We expect to prevail in court.”

Most excessive fee cases are settled prior to trial, according to Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

“Unless NYU is absolutely confident it will prevail … then its review process becomes an exercise in risk management,” he said.

Mr. Schlichter, managing partner of law firm Schlichter Bogard & Denton, is a pioneer of litigation against 401(k) plan sponsors for allegedly excessive fees, dating back to 2006. Such retirement-plan litigation has proliferated and branched into different niches in recent years.

Mr. Schlichter’s cases against NYU and others schools represented the first such cases to target university 403(b) plans, which are defined-contribution plans for public educational institutions, nonprofit employers and churches.