Georgetown University Defeats Retirement Plan Fee Litigation and “If a Cat Were a Dog, It Would Bark”

Recently, the US District Court for the District of Columbia dismissed a proposed class action lawsuit brought by former Georgetown employees under the Employee Retirement Income Security Act of 1974 (ERISA) over fees and investments in its two retirement plans. Plaintiffs alleged that Georgetown breached its fiduciary duty of prudence under ERISA by selecting and retaining investment options with excessive administrative fees and expenses charged to the plans, and unnecessarily retained three recordkeepers rather than one.

The court dismissed most of the claims on the grounds that plaintiffs had not plead sufficient facts showing that they had individually suffered an injury. Because they challenged defined contribution plans (as opposed to defined benefit plans), the plaintiffs had to plead facts showing how their individual plan accounts were harmed. In this case, the named plaintiffs had not invested in the challenged funds, or the challenged fund had actually outperformed other funds, or, in the case of the early withdrawal penalty from the annuity fund, the penalty had been properly disclosed and neither plaintiff had attempted to withdrawal funds – thereby suffering no injury. Moreover, in dismissing the allegations that the Plans included annuities that limited participants’ access to their contributed funds, the court rejoined, “[i]f 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.” As to another fund, the court rejected the claim that the fiduciaries should be liable for the mere alleged underperformance of the fund, noting that “ERISA does not provide a cause of action for ‘underperforming funds.” Nor is a fiduciary required to select the best performing fund. A fiduciary must only discharge their duties with care, skill, prudence and diligence under the circumstances, when they make their decisions.

The court noted that ERISA’s fiduciary standard of prudence requires only that a plan fiduciary use appropriate methods to investigate the merits of the challenged investments and to structure the investments related to the challenged transactions. By that standard, the court said, the plaintiffs failed to show any factual basis for finding that Georgetown breached its fiduciary duty. It noted that the plaintiffs’ allegations targeted the “fundamental structures” of Georgetown’s retirement plans, not the fiduciary prudence of the plan trustees.

Georgetown is just one of several prestigious universities to be sued over the management of its retirement plans since a wave of similar suits began in 2016. It is the fifth school to beat allegations that it mismanaged its retirement plans in violation of ERISA, following New York University, Northwestern University, the University of Pennsylvania and Washington University in St. Louis. Thus far, University of Chicago has settled similar claims for $6.5 million, and Duke University did the same for an undisclosed amount.

While these suits focus on 403(b) retirement plans, similar claims are also seen in the context of 401(k) plans. The recent university fee litigation, including the suit against Georgetown, continue to evolve the landscape of ERISA litigation and the theories brought by plaintiffs for breach of fiduciary duty. It underscores the importance of plan fiduciaries’ duty to regularly meet, keep apprised of retirement plan operations, and document a deliberative and thoughtful decision-making process.

Chris C. Scheithauer

Erin Steele
Erin Steele focuses her practice on employee benefits and executive compensation. She has experience working on matters related to employee stock ownership plans (ESOPs), code section 401(k) plans, health and welfare arrangements, and Employee Retirement Income Security Act of 1974 (ERISA) litigation. She has also assisted in employee benefits matters as part of corporate transactional due diligence work. Read Erin Steele's full bio.

J. Christian Nemeth
J. Christian (Chris) Nemeth provides legal counsel on complex commercial litigation and government investigations, including ERISA matters, financial and banking cases, business torts and breach of contract actions. Chris is the Co-Chair of the Firm’s ERISA Litigation group and works closely with the Firm’s Employee Benefits department on all types of Litigation matters, Department of Labor investigations and similar issues. Read Chris Nemeth's full bio.

Joseph K. Urwitz
Joseph (Joe) K. Urwitz focuses his practice on employee benefits, executive compensation and Employee Retirement Income Security Act (ERISA) fiduciary matters. He advises clients on a wide range of issues, including fiduciary duties and prohibited transactions, employee benefit matters arising in mergers and acquisitions, benefits issues unique to nonprofit entities, deferred compensation arrangements, equity award and bonus plan design, employment and severance arrangements, and qualified plan work. Read Joe Urwitz's full bio.




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