First, it was M.I.T., Yale and N.Y.U. Then, Duke University, Johns Hopkins, University of Pennsylvania, and Vanderbilt were sued for excessive fees in their employees’ retirement accounts, according to a New York Times report. With these class-action suits filed, let’s examine what are the common problems and allegations made against 403(b) plans.
403(b) plans, are similar to 401(k) retirement plans available to employees of public schools and nonprofit institutions like universities and hospitals. The most common allegation that has been reported against 403(b) plans is excessive fees that result in lost retirement savings for the investors. These universities reportedly used multiple ‘record keeper’ providers and paid excessive revenue sharing payments to these providers, amounting to millions of dollars in lost savings.
While the employee investors would have benefited more from fewer simplified options that leveraged economies of scale, there were 400+ investment options which were confusing for them and made them opt for duplicative strategies according the same news report. Allegedly, millions of dollars in retirement assets were unsuitably invested in underperforming funds in a retail share class as opposed to a less-expensive institutional share class. The investment advisors for these plans allegedly breached their fiduciary duty which mandates the reduction of excessive fees and conflicts of interest that erode retirement savings for all investors.
While the validity of these suits are yet to be proven, in the recent months, Malecki Law has been reviewing potential actions against retirement accounts that are costing employees their retirement savings through excessive fees and unsuitable investments. The media has been seeking comments from us about these cases.
Malecki Law champions investor rights and believes that employees of non-profits have a right to build retirement nest eggs that are reliable and easy for them to comprehend. Under the Department of Labor’s new investor protection rule, financial advisors and brokers managing 401(k) and 403(b) retirement accounts are required to act in the best interest of their clients. With the laws tightening around fiduciary duty and who is subject to it, it is expected that more such cases will come to light.