Three well-known universities have been sued for what they say are excessive fees employees paid for their retirement accounts.
The universities — the Massachusetts Institute of Technology, New York University and Yale — are being sued by a number of employees for failing to monitor excessive fees to administer their plans, the New York Times reported. They claim the colleges also neglected to replace expensive, poor-performing investments with cheaper alternatives.
The complainants argue that if the universities had used their bargaining power to slash plan costs, participants could have collectively saved tens of millions of dollars. The plans — called 403(b) plans, which are similar to 401(k) plans but offered by public schools and non-profit institutions — each hold more than $3 billion in total assets.
The university suits are the latest front in a slew of class action cases targeting retirement plans brought by St. Louis lawyer Jerome Schlichter, including one Tibble v. Edison that was affirmed by the Supreme Court last year.
While not always successful in court, the suits have been credited with helping bring down plan fees throughout the retirement plan universe. Indeed, even small reductions in plan fees can greatly impact retirees’ savings. For instance, paying one percentage point more in fees over the course of a 35-year career can leave that worker with 28% less savings at retirement.
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In the case of MIT, the suit claims that due to the university’s long-time relationship with Fidelity, it did not conduct an extensive search for an alternative plan provider. Fidelity has donated hundreds of thousands of dollars to MIT, while its chief executive Abigail Johnson has served as a member of MIT’s Board of Trustees, according to the suit.
MIT’s plan offered more than 340 investment options, including 180 Fidelity funds, until July 2015, when MIT downsized its offerings to 37 options. The suit claims that if the plan had reduced its offerings sooner, “participants would have saved over $8 million in 2014 alone, and many more millions more since 2010.”