The plaintiffs law firm that's been Enemy No. 1 to corporate America when it comes to litigation over retirement plans has a new target — the country's largest universities.
Roughly a dozen universities have been hit with suits this month charging the schools with wasting retiree money on needless record-keeping, offering underperforming plans and failing to use their leverage to negotiate lower fees. Many of the suits are backed by Schlichter Bogard & Denton — a St. Louis firm that has led the way in class litigation over retirement plans and reaped significant legal fees over the past few years.
Baker & Hostetler Cleveland partner John McGowan, who specializes in litigation involving benefit plans, said universities may have landed in Schlichter's crosshairs because their retirement plans historically have not been subject to the same scrutiny as corporate plans. "It's not an area where a lot of attention has been paid to dotting the i's and crossing the t's," he said.
Technically, the university suits mainly challenge 403(b) retirement plans, which are available to employees of colleges and universities, religious organizations and other nonprofit entities. Until several years ago, the Internal Revenue Service had regulated such plans more loosely, but that ended with rules implemented in 2009.
Some universities have been slow to adapt to those rules, which treat their retirement plans much like 401(k) plans or layered new plans on top of old, defense lawyers said, leaving them exposed to litigation under the Employee Retirement Income Security Act.
"If you're a big enough fund and your fiduciary duty is to get the best pricing going forward, then why aren't you using your leverage?" McGowan said. "That's what appeals to the plaintiffs' bar—when they can catch someone with a fiduciary duty being asleep at the switch."
For the plaintiffs bar, "it's really as simple as realizing there's a whole additional universe of plans that may have gotten less attention than in the past," Dechert partner Andrew Oringer said. He added: "It would seem like a good time for universities generally to review their legal compliance an their tax compliance and put themselves in the best position to deal with possible allegations."
'Less Oversight'
The university lawsuits challenge practices at New York University, Duke University, the Vanderbilt, Columbia, Cornell, Northwestern, Emory, Johns Hopkins, University of Southern California, the University of Pennsylvania, Massachusetts Institute of Technology and Yale — employers responsible for billions in assets and representing tens of thousands of retirees and people saving for retirement. (Click here for more details.)
Defense attorneys are just now starting to make their initial appearances in those cases. In Tracey v. Massachusetts Institute of Technology, for one, Alison Douglass of Goodwin Procter and Brian Boyle and Meaghan VerGow of O'Melveny & Myers have been tapped to represent MIT.
They'll be facing off against Jerome Schlichter and his colleagues at Schlichter Bogard. Schlichter said the suits are the result of a "sea change" in American pension plans, in which employees doing the funding now have more incentive to question fees and management practices.
"It's our position that university employees are entitled under ERISA to the same protections for their retirement assets as employees of private companies," Schlichter said. "In some cases, we allege that the fiduciary obligation has not been complied with—and historically, there has been less oversight of funds in the university space than in private companies."
