Updated: August 11
Yale is one of three universities being sued by employees who allege that they were charged tens of millions of dollars in excessive fees on their retirement savings.
Employees of the Massachusetts Institute of Technology, New York University and Yale University claim that their respective schools breached their fiduciary contracts by allowing university retirement plan participants to pay extortionate fees for record keeping, administrative and investment services, The New York Times and other outlets reported Tuesday.
Represented by the retirement plan litigation expert Jerome J. Schlichter, the individual plaintiffs filed federal civil lawsuits Tuesday, and groups from each university are now seeking class-action status. Schlichter has had success bringing similar suits against for-profit companies, but had not turned his focus to nonprofits until now.
“It is important for retirees and employees of universities to have the same rights and ability to build their retirement assets as employees of for-profit companies,” Schlichter told the Times. “They shouldn’t be penalized.”
Yale spokeswoman Karen Peart said that the University has not officially been served with the complaint. Peart added that the University is “cautious and careful” in administering its retirement plans and would mount a “vigorous” defense against those contending otherwise. She declined to comment further.
The lawsuit against Yale names six plaintiffs — all University employees — and lists both the University and Vice President of Human Resources and Administration Michael Peel as defendants. The accusations leveled against the institution center on its record-keeping inefficiencies, its decision to stock Retirement Account Plan participants’ portfolios with retail rather than institutional funds and its failure to diversify those investment portfolios. In some cases, the plaintiffs claim, these retail funds cost them as much as 750 percent more than identical institutional funds would have.
As of June 2014, the University’s plan held $3.6 billion in assets and had 16,487 participants, ranking it in the largest 1 percent of defined contribution plans. Given the plan’s size and consequent bargaining power, the plaintiffs argue that the university could have cut costs by demanding more affordable administrative and investment management services.
Although excessive fees may not appear significant, small margins add up over time. The lawsuit cites the U.S. Department of Labor, saying that “a 1% higher level of fees over a 35-year period makes a 28% difference in retirement assets at the end of a participant’s career.”
The case will be heard in Connecticut Federal District Court.