PHILADELPHIA – The University of Pennsylvania is one of
several universities being sued by employees amid allegations that the schools’
retirement plans come with excessive fees.
In addition to the University of Pennsylvania, complaints
were filed on behalf of employees of Duke University, Johns Hopkins University and
Vanderbilt University. Before the latest round of complaints, lawsuits were
also filed against the Massachusetts Institute of Technology, New York
University and Yale University.
In these lawsuits, the employees allege that the schools are
using more than one “record keeper” to oversee and administer their pension
plans. The suits claim that if the plans were run by just one provider, lower fees
could have been negotiated. They said this would save the pension plans
millions of dollars in fees incurred each year.
“Penn has a $3.8 billion plan, yet it has retail mutual
funds in it, which in some cases are 300 percent more expensive than identical
institutional mutual funds, except for fees,” plaintiffs’ attorney Jerome J.
Schlichter of Schlichter Bogard & Denton told the Pennsylvania Record.
In addition, the employees allege that the universities’
current plans give participants too many expensive choices for investment, even
when less expensive options were available. The plaintiffs also claim the
myriad overpriced investment options are too confusing for plan participants.
Schlichter said Penn’s plan has two record keepers and
offers more than 75 investment options to plan participants.
“The plan has numerous investment options in the same
investment style, which all studies show leads to confusion among employees and
retirees, and is very different from industry standards,” Schlichter said. “Just
reading the prospectuses from such a large number of options, many of which are
duplicative, would take employees many days if they did nothing else.”
The lawsuit states that there was no prudent process for
selecting the plan options, but that there should be.
“A prudent fiduciary responsible for handling someone else’s
money, as the Penn fiduciaries are, would not have run the plan this way,”
Schlichter said. “Fees in 401(k) plans have come down significantly, but those in
the Penn plan have not.”
Schlichter said the purpose of the lawsuit is to compensate
Penn employees and retirees for what has happened in the past and to enable
them to build a meaningful retirement in the future.
“Penn employees and retirees, whether they be hourly workers
or professors or anyone else, have the same right to build their retirement
assets as employees of corporations have,” Schlichter said. “A plan of this
enormous size can command far lower fees for its employees and retirees than a
$250 retail investor can, yet the Penn plan has these very expensive retail
Instead of the more well-known 401(k) retirement plans, the
pension plans at the center of the universities’ lawsuits are 403(b) plans.
Although these plans do share many of the same characteristics of the
traditional 401(k), they are more commonly used by public schools,
universities, hospitals and other non-profit institutions that offer pension
plans to their employees.