Magazine article University Business

Retirement Plans under Attack: Getting an Institution's Plan in Compliance to Better Serve Employees-And Avoid a Lawsuit

Magazine article University Business

Retirement Plans under Attack: Getting an Institution's Plan in Compliance to Better Serve Employees-And Avoid a Lawsuit

Article excerpt

Eight prominent universities--including University of Pennsylvania, Duke, Emory, Johns ETopkins, Vanderbilt and others--were hit with separate lawsuits in August 2016 alleging the institutions mishandled their employee retirement plans. While the institutions fight those lawsuits, experts have predicted the complaints are just the first of many to be filed against colleges and universities that sponsor 401 (k) or 403(b) retirement plans.

"This litigation is no surprise, as the same lawyers who are pursuing higher education retirement plans have brought similar suits against large corporate retirement plans," says Mark Johnson, founder of ERISA Benefits Consulting in Texas and a former corporate attorney. "Many of those large corporate plans are settling their cases and cutting their losses, and if the universities do the same, it may lead to more lawsuits in higher education."

Some similar lawsuits have rendered large settlements. For instance, Schlichter Bogard & Denton--the law firm behind many of the recent higher education lawsuits--has settled suits against companies such as Lockheed Martin, Boeing and Novant Health. The Lockheed Martin settlement was for $62 million.

Under the Employee Retirement Income Security Act (ERISA), employers that sponsor retirement plans have a fiduciary responsibility to prudently manage those plans on the behalf of their employees. In general, the lawsuits allege the universities breached those responsibilities by offering retirement plans that required employees to pay excessive fees and miss out on extra savings. Some of the suits also claim:

* The plans offered too many investment options, which can confuse employees.

* The universities did not swap out expensive, poor-performing investments for better options.

* The universities cost their employees more by using multiple companies as plan providers rather than by negotiating lower fees with just one provider.

In recent years, sweeping changes to ERISA regulations have required employers to revisit their retirement plans and, often, make changes. While public universities, as government employers, are not subject to ERISA regulations, many of them are closely watching the developments and making changes to the way they run their retirement plans, unsure of how the lawsuits may reshape regulations across the board.

As college and university leaders across the country wait to see how these lawsuits will be resolved, they can also take important steps to ensure that their own plans comply with regulations and are not vulnerable to litigation.

Understanding how we got here

Retirement plan sponsors face countless challenges to fulfilling their responsibilities: increased longevity, low savings rates, diverse workforce demographics, aging employees, market volatility, low interest rates, diminishing pension plans, plan mergers and automatic features, says Karen Casillas, vice president and financial advisor at Captrust, which provides advisory services to retirement plan fiduciaries.

The first step to compliance is realizing how changing regulations impact institutional retirement plan administrators.

Before 2009, informal rules guided the management of 403(b) plans (used at most colleges and universities), and only simple reporting was required, with limited fiduciary and oversight requirements. Most higher ed institutions applied very few resources to retirement plans because only limited employer involvement was required, says Casillas.

However, in 2007, the IRS issued "the most comprehensive regulations governing 403(b) plans in more than 43 years, requiring significant compliance obligations to be phased in," Casillas says. And beginning in 2009, nonprofit institutions sponsoring a plan had to implement several new rules that required extensive resources, oversight and attention. (See "Meeting ERISA requirements," page 41. …

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