A proposed class action claims that Northeastern University and the committee that manages the school’s employee retirement plan have breached their fiduciary duties by failing to select “prudent” investment options and ensure that recordkeeping fees remain “reasonable.”
The 36-page lawsuit alleges the Suffolk County, Massachusetts university, despite its responsibility as the plan sponsor to act as a prudent fiduciary, “utterly failed to employ a prudent process for managing the Plan.”
Per the suit, participants in Northeastern’s employee retirement plan, which reportedly had $1.9 billion in assets by the end of 2020, have lost millions in retirement savings as a result of the defendants’ selection of imprudent investment options and failure to ensure that the plan’s recordkeeping fees were kept reasonably low.
According to the case, the size of Northeastern’s employee retirement plan, which ranks among the top 0.1 percent of all direct contribution plans, should have given the defendants “outsized bargaining power” in the market for recordkeeping services and allowed the university to ensure that recordkeeping fees were kept low. The suit alleges, however, that plan participants were likely subjected to “dramatically high” recordkeeping costs that were much higher than those paid by similar plans.
The case goes on to claim that the defendants imprudently limited the plan’s investment menu to “low-performing, high-cost investment options,” including the “consistently underperforming” CREF stock account and “costly” Teachers Insurance and Annuity Association (TIAA) real estate account.
Per the suit, many of the plan’s investment options were “significantly more expensive” and performed worse than comparable funds chosen by plans of a similar size or other versions of options that were already in the plan. Moreover, the lawsuit claims that some of the plan’s investments were flagged as imprudent in Employee Retirement Income Security Act (ERISA) litigation that the defendants “could and should have been aware” of.
The suit alleges Northeastern nevertheless failed to remove these imprudent options from the plan’s investment menu despite its obligation to prudently monitor the investment options available to plan participants.
The lawsuit further claims that Northeastern ignored “red flags” specific to TIAA and Fidelity Management Trust Company, the plan’s custodians. Per the suit, TIAA’s offerings have been questioned in litigation filed by participants in many university-sponsored retirement plans, and a TIAA subsidiary was the subject of a joint investigation by the U.S. Securities and Exchange Commission and New York attorney general regarding allegations that it essentially “scare[d]” retirement plan participants into purchasing unnecessary services.
“In the face of all of this, Defendants did—nothing,” the complaint scathes. “TIAA was and remains one of the Plan’s custodians—enjoying access to information about the Plan’s thousands of participants.”
The lawsuit alleges the red flags with regard to Fidelity were “less headline-grabbing” but also harmful to plan participants. The case notes that Fidelity’s offerings and recordkeeping services have been challenged in litigation filed by participants in “numerous plans.” Nevertheless, the defendants failed to scrutinize the Fidelity offerings in the plan and ensure that participants were not paying needlessly excessive expense ratios, the suit claims.
The lawsuit looks to represent anyone who was a participant in or beneficiary of the Northeastern employee retirement plan at any time between June 30, 2016 and the date of judgment in the case.
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