Yale Daily News

United States District Judge Alvin Thompson LAW ’78 ruled on March 30 to allow four Yale employees to proceed with most of the claims they filed in an August 2016 lawsuit alleging that the Yale’s retirement plan comes with excessive administrative fees that the University has not done enough to reduce.

Yale’s retirement plan is overseen by outside investment managers who charge administrative and record keeping fees for their services. The plaintiffs — Joseph Vellali, Nancy Lowers, Jan Taschner and James Mancini — in the case claim that Yale did not drive a hard enough bargain with the investment managers it hired to handle the retirement plan and that, as a result, University staff and faculty members pay $200 to $300 per person in recordkeeping fees to these managers, which the plaintiffs claim is nearly five times higher than what is reasonable.  As of June 30, 2015, Yale’s retirement plan held $3.8 billion in assets and had 17,138 participants.

The plaintiffs hope to file a class-action lawsuit on behalf of all participants of Yale’s retirement plan but will need court approval to do so. More than a dozen other colleges and universities have also recently been hit  with the threat of class-action lawsuits raising concerns about their retirement plans.

The University filed a motion in January 2017 requesting that the court dismiss all the claims made by the plaintiffs. Last month’s 40-page ruling dismissed some of the plaintiffs’ claims — such as the allegation that Yale provides “too many” investment options in the retirement plan and thus paralyzes decision-making — but allowed the plaintiffs to proceed with most of them. In an email to the News, University spokesman Tom Conroy said Yale will continue to fight the lawsuit.

“We are pleased that the court dismissed some claims, in allowing some others to move forward through the process,” Conroy wrote. “As we have said before, we believe that all these allegations are without merit and — working with our legal team — we will continue to respond to these allegations and intend to oppose this suit vigorously.”

Jerome Schlichter, one of the lawyers representing the plaintiffs, and Vellani, one of the four plaintiffs, did not respond to requests for comment. The other three plaintiffs could not be reached for comment.

The plaintiffs argue that the University failed to scrutinize all the investment options included in the retirement plan before contracting with the investment managers. They also find fault with Yale’s decision to enact a bundling agreement with its investment management companies under which the University relinquished the right to reconfigure its investments if some start to underperform.

Thompson allowed such claims to proceed, despite Yale’s argument that bundling arrangements are commonplace and generally beneficial.

“The process of selecting vendors and negotiating service fees can materially affect an employee’s retirement income because every dollar spent on either recordkeeping or investment management is a dollar that is not contributing to increasing the amount of the employee’s retirement savings,” Thompson wrote in his ruling. “Over time, excessive service fees can erode an employee’s retirement savings to the tune of tens or hundreds of thousands of dollars.”

Thompson dismissed the claim that Yale breached “duty of loyalty” to its employees, concluding that Yale has not sought to benefit itself or a third party at the expense of the plan’s participants.

Schlichter is a pioneer in retirement plan litigation. He and the law firm he founded have obtained over $300 million in settlements with big companies like Boeing Co. over claims of excessive retirement plan fees.

Schlichter is behind similar ongoing cases against the Massachusetts Institute of Technology and New York University, each of which — like Yale — has over $3 billion in retirement plan holdings. The University of Pennsylvania is the only university to have defeated outright a lawsuit over retirement plan mismanagement, when a federal judge ruled in September 2017 to dismiss all the plaintiffs’ claims.

Scott Dauenhauer, a consultant on teacher retirement plans, said that before the recent series of lawsuits against Yale and other universities emerged, mismanagement claims were made exclusively against 401(k) plans, which are generally used by corporations and not by nonprofit organizations.

Dauenhauer said Schlichter’s firm is copying the template used for retirement plan cases against companies for its cases against higher educational institutions, whose plans are often in better shape.

“I’m not a fan of these lawsuits in general,” he said. “I think they are basically a money grab, not by the participants filing them but the attorneys who are filing them.”

Jingyi Cui | jingyi.cui@yale.edu