The University has introduced a series of changes to its retirement plan, which will improve the quality of the plan and simplify investment options, amid an ongoing lawsuit alleging that the University’s previous retirement policies were excessively expensive and poorly performing.
The most recent alterations will automatically enroll all faculty and staff into the Yale Target-Date Plus Service, the new default option. But faculty interviewed by the News diverged on what the cost would be to Yale employees. The University invests funds into an employee’s retirement plan according to his or her projected retirement age. Faculty and staff can opt out of the automatic service and pursue a different investment strategy using 11 offerings selected by the University. Prior to the most recent change, the University offered more than 100 options for potential retirement plans, leaving an overwhelming number of options for less financially savvy employees.
In 2016, six plaintiffs –– ranging from web developers, facilities and maintenance workers and library staff –– sued the University for its allegedly expensive and deficient retirement plan. University spokesperson Karen Peart said that the changes to the retirement plan were not in response to the ongoing litigation, explaining that the policy revisions were underway before the 2016 class-action lawsuit.
“The University, through its Fiduciary Committee on Investments, regularly reviews and monitors the retirement savings program and periodically implements enhancements to maximize participants’ ability to adequately save and prepare for retirement,” Peart wrote in an email to the News.
In 2009, the University added qualified default investment alternatives –– a change designed to enhance long-term retirement savings –– and introduced automatic enrollment in the Yale University Retirement Account Plan.
Yale announced the most recent changes — the most extensive in several years — on Oct. 15. Employees will be automatically enrolled in the Yale Target-Date Plus Service as of March 4, unless they transition into one of the other investment options.
Peart said the new Yale Target-Date Plus Service will adjust asset allocation automatically to reduce the risk of investments. Whatever plan employees choose, Peart said they may also invest part of their account into the new Self Directed Brokerage Account. This option will allow individuals more choice over their own investments.
According to Yale assistant professor of economics Jose-Antonio Espin-Sanchez, the new default option of the Yale Target-Date Plus Service will benefit most employees. According to Sanchez, these alterations would not necessarily lower fees, a key contention in the 2016 lawsuit. But instead of a reduction in costs, he said the default plan’s ability to change over time coupled with the reduction from 121 to 11 investment options will likely improve the plans’ quality of service.
“It may very well be that these two changes are a consequence of the lawsuit in that they are an improvements on the services they are providing,” Espin-Sanchez said.
In the suit, Yale employees allege that the University’s retirement plan led to excessive fees for its employees. At the time of filing, the University provided a statement to the News saying that the allegations lacked merit. The statement defended what they called the University’s robust employee retirement packages.
Jerome J. Schlichter, an attorney for the plaintiffs, said his team is obtaining documents from Yale and taking deposition from University employees responsible for coordinating the plans. He hopes to complete depositions in the first half of 2019 and begin the trial later that year. Schlichter said his team is currently evaluating these new changes to the retirement plan.
“We allege in the lawsuit that there are imprudent funds that have been part of the plan and excessive fees,” Schlichter said, referring questions about a causal relationship between the suit and the recent changes to the University. But he added that “the changes have been made with the lawsuit pending.”
Schlichter has led prosecution teams in many similar cases against high-profile institutions of higher education, including New York University, the Massachusetts Institute of Technology and, more recently, Duke University. In July, a federal judge ruled in favor of New York University in one of those cases.
The University will hold another town hall on Dec. 12 to discuss the changes to the retirement plan.
Carly Wanna | carly.wanna@yale.edu