New York University defeated an Employee Retirement Income Security Act class action on Tuesday when a federal judge rejected workers’ claims that the school’s two employee retirement plans were mismanaged to the tune of $358 million in losses.
U.S. District Judge Katherine B. Forrest’s opinion and order tossed allegations that an NYU committee wasted workers’ retirement savings by retaining two recordkeepers for the plans instead of one and keeping a pair of supposedly lagging investment funds on the plans’ lineups.
Those claims, which accused NYU of breaching its ERISA-imposed duty to make prudent decisions for over 20,000 plan participants, weren’t supported by the facts, Judge Forrest said Tuesday, two months after hearing both sides’ arguments during an eight-day bench trial.
“While there were deficiencies in the committee’s processes — including that several members displayed a concerning lack of knowledge relevant to the committee’s mandate — plaintiffs have not proven that the committee acted imprudently or that the plans suffered losses as a result,” Judge Forrest wrote.
During the trial’s closing arguments, Judge Forrest had repeatedly interrupted NYU’s counsel to question whether the school’s retirement committee members knew what they were doing.
After reviewing all the evidence in the case, however, Judge Forrest said she found the committee had a prudent process in place for evaluating the plans’ investments and monitoring the recordkeepers.
The class had assumed that dropping one of the plan’s two recordkeepers would reduce the plan’s fees, but the evidence didn’t support that assumption, or the assumption that a single recordkeeper would have been better than two, Judge Forrest said.
Evidence also failed to support the class’ assertion that NYU’s committee slacked when negotiating with the Teachers Insurance and Annuity Association, formerly TIAA-CREF, for lower plan fees, Judge Forrest said.
“While plaintiffs assert that the committee did not negotiate fee reductions zealously enough, the record reflects a number of serious — and successful — efforts by the committee to reduce recordkeeping fees,” Judge Forrest wrote. “As of 2018, both plans’ fees for the TIAA assets decreased substantially.”
The class also fell short when attempting to prove the committee acted imprudently by keeping the TIAA Real Estate Account and the CREF Stock Account on the plans’ investment lineups, the court said.
Analyses of the funds’ performance show that both “performed as well as would have been expected” during the class period, Judge Forrest wrote. Furthermore, evidence showed the class actively engaged with both funds over the years, considering the appropriateness of benchmarks used to measure fund performance and, in the case of the real estate account, asking the Teachers Insurance and Annuity Association to explain the strategy of the fund.
One of the class’s experts, Gerald Buetow, had argued that both funds underperformed, but the judge said he used improper benchmarks and, in the TIAA fund’s case, failed to account for the fund’s cash holdings.
In the case of the CREF Stock Account, Judge Forrest wrote, “Buetow incorrectly used [a] benchmark … that was not in place until mid-2011 to cover a period prior to mid-2011.”
“In fact, the benchmark Buetow used was his own creation,” Judge Forrest said.
NYU spokesman John H. Beckman said Tuesday that the school “maintained from the time the plaintiffs first publicized this case that it was baseless, and the judge’s finding supports that.”
“The simple fact is that NYU is and always has been a careful, conscientious steward of the retirement plans for its employees and retirees, and the plaintiffs failed to meet their burden of proof to suggest otherwise,” Beckman said in a statement.
Judge Forrest’s opinion and order capped off the first trial against an elite university since a series of ERISA class actions were filed against them beginning in 2016.
Many of those suits, which all alleged colleges’ retirement plans flouted ERISA by charging high fees and offering underperforming investment options, came from the Midwestern law firm Schlichter Bogard & Denton LLP, which became known among benefits lawyers after partner Jerry Schlichter prevailed in a series of lawsuits against corporations over their 401(k) plan fees in the 2000s.
Two of the firm’s university targets, the University of Pennsylvania and Northwestern University, beat the lawsuits at the motion-to-dismiss stage, while a school sued by Schneider Wallace Cottrell Konecky Wotkyns LLP, the University of Chicago, opted to settle for $6.5 million.
That leaves 15 universities — the Massachusetts Institute of Technology, Yale, Duke, Vanderbilt, Johns Hopkins, Emory, Cornell, the University of Southern California, Columbia, Princeton, Washington University in St. Louis, Brown, Georgetown, the George Washington University and the University of Rochester — left facing suits at the district court level.
Schlichter Bogard has appealed the suit against Penn to the Third Circuit and asked an Illinois federal judge to reconsider his verdict in the suit against Northwestern.
On Tuesday, Schlichter said he plans to appeal the NYU decision.
“We respectfully continue to believe that retirement plan participants at universities that operate as nonprofits have the same rights and protections under the law to build their retirement savings as workers at for-profit companies,” Schlichter said in a statement to Law360. “We also continue to believe, from the unanimous ruling by the U.S. Supreme Courtin Tibble v. Edison, that placing high priced retail funds in the NYU multibillion-dollar plans is a fiduciary breach and the fees charged were excessive. We will continue to pursue this case in order to make the NYU employees and retirees financially whole.”
Counsel for NYU did not immediately respond to requests for comment Tuesday.
The class is represented by Jerome J. Schlichter, Heather Lea, Joel Rohlf and Ethan Hatch of Schlichter Bogard & Denton LLP.
NYU is represented by Mark Muedeking, Ian C. Taylor, Jennifer K. Squillario, Harry Rudo and Evan D. Parness of DLA Piper.
The case is Sacerdote et al. v. New York University, case number 1:16-cv-06284, in U.S. District Court for the Southern District of New York.