Have 403(b) lawsuits hit a wall? Fifth university wins dismissal

Georgetown University latest to beat back employee suit over high fees

Jan 9, 2019 @ 2:35 pm

By Greg Iacurci

Losses continue to mount for university employees suing their schools over allegedly excessive retirement-plan fees. Georgetown University became the fifth defendant to successfully beat back such claims in court.

Roughly two dozen lawsuits against universities for imprudent management of their 403(b) plans, which are defined-contribution plans for nonprofits, have been filed since August 2016.

The Georgetown case concerned similar allegations as the others: that the university retained high-cost investment options and multiple record keepers, included imprudent investments, and offered too many funds, all of which lost money for retirement savers.

Judge Rosemary M. Collyer of the U.S. District Court for the District of Columbia dismissed all claims against Georgetown on Tuesday. She dismissed the class-action case without prejudice, which gives plaintiffs a chance to try again.

Attorneys for plaintiffs Darrell Wilcox and Michael McGuire, who work for Georgetown, didn't respond to a request for comment. A spokesperson for Georgetown also didn't respond.

The University of Pennsylvania, Northwestern University and Washington University in St. Louis were other universities to have obtained dismissals before trial. New York University won after a trial hearing. Two schools, Duke University and the University of Chicago, settled their lawsuits. Plaintiffs have yet to receive a favorable ruling from a judge.

"It seems like the plaintiffs in the university cases have, for the most part, hit a wall," said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

However, since some of these cases will likely go on for a decade or more, Mr. Thompson cautioned that the lawsuits are still in their nascent stages and it's too soon to say they're "going nowhere."

Jerome Schlichter, the attorney who brought 401(k) fee lawsuits en masse in the mid-2000s and filed the first several 403(b) cases, is petitioning a New York district court to rehear his case against NYU. He claims the judge, Katherine B. Forrest, had a conflict of interest and should have recused herself from the case.

One common complaint among plaintiffs is the inclusion of annuities in these university retirement plans. Georgetown plaintiffs took issue with costs associated with the annuities offered and restrictions for moving assets into other investment options.

However, the judge in the Georgetown case — Wilcox et al v. Georgetown University et al, filed in February 2018 — said 403(b) plans have different characteristics than corporate 401(k) plans. 403(b) plans, she said, had included annuities as investments for decades before section 401(k) was added to the tax code.

"If 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. These two truisms can be summarized: cats don't bark and annuities don't pay out immediately," the judge wrote.

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