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Judge Isn't Convinced by Defense's Argument at NYU ERISA Trial

U.S. District Judge for the Southern District of New York, Katherine B. Forrest, was not convinced by the May 16 closing arguments in an Employee Income Retirement Security Act ("ERISA") class action lawsuit against New York University ("NYU"). The suit alleges that NYU's retirement committee mismanaged employees' retirement savings, and Judge Forrest interrupted defense counsel multiple times to question if the committee members were knowledgeable enough to oversee NYU's two plans.

The eight-day trial saw many NYU employees, both current and former, asserting that the retirement committee members breached their ERISA fiduciary duties when they failed to remove two underperforming funds from the plan options. The university workers also claimed the record-keeping fees the committee allowed TIAA, a financial services company, to charge were excessively high.

Plaintiffs asserted that the retirement committee treated TIAA like a "business partner" and deferred to its judgement excessively during a request for proposal process. Upon TIAA's suggestion, the committee agreed to tie fees to plan assets instead of charging a flat fee, which would have been less expensive for plan participants. Plaintiffs also accused the committee of giving its hired consulting company, Cammack Retirement Group ("Cammack"), excessive decision-making power, and failing to investigate "blatant red flags for both fees and performance."

Deposition excerpts revealed that retirement committee members were incapable of defining investment terms and judging the quality of investments. The co-chair of the committee and senior director of benefits at NYU, Margaret Meagher, even deflected the committee's responsibility to ensure reasonable plan fees. Judge Forrest found this comment and Meagher's willingness to leave important decisions up to Cammack particularly concerning. Addressing the lack of qualification, Judge Forrest said "[i]f she's not intellectually capable of listening to the information and understanding the information, she should be off the committee."

Meagher's deposition also revealed her inability to distinguish between real estate investment trusts and the TIAA real estate account, an allegedly underperforming option offered to participants in the NYU retirement plan. Judge Forrest was shocked at Meagher's ignorance of the difference between the two types of accounts, saying, "[t]his is the chair of a $6 billion retirement committee. This plan deserves the best of the best."

Defense counsel argued that the retirement committee members were not required to be finance experts to serve on the committee. Judge Forrest agreed with this assertion, but added they did have a duty to "dig carefully and deliberately kick the tires."

Plaintiffs argued the retirement committee had a "lackadaisically cavalier attitude toward protecting workers' retirement assets," and claimed members prioritized their administrative jobs over their committee work, as the committee didn't impact their salaries. Counsel described it as "one of those committees where they meet at 4:30 in the afternoon on a Friday and everyone's checking their watches."

According to plaintiffs' calculations, the retirement committee's negligence cost plan participants $42 million in excessive fees and $52 million in underperforming investments.

Defendants claimed that while individual members may have lacked diligence, the NYU retirement committee, as a whole, upheld its fiduciary duties by having regular meetings, hiring Cammack to act as a consultant, and commissioning two requests for proposals before choosing TIAA to manage the retirement plans' assets.

The tune of defendants' argument changed slightly during closing arguments, when their counsel asserted that the retirement committee was not actually an ERISA fiduciary at all, as a fiduciary is "not a title, it's a function." Therefore, the committee was only acting as a fiduciary when actively overseeing the plans, and because of the nature of the 403(b) plans, they required more participation from individual plan participants than the committee.

Judge Forrest, however, was not convinced, and called the reasoning an "extremely unappealing argument, because the argument is that you could have $6 billion in assets under a 403(b) plan" and no one responsible for its oversight. Judge Forrest also took issue with the defense's argument because the retirement committee members "certainly thought they were [fiduciaries] - it's all over the evidence."

The trial was the first in a series of ERISA class action lawsuits against universities. In addition to NYU, universities facing ERISA suits are Duke University, Yale University, Cornell University, Columbia University, Brown University, Princeton University, Northwestern University, Emory University, The University of Chicago, The George Washington University, Georgetown University, The University of Southern California, Johns Hopkins University, Vanderbilt University, Massachusetts Institute of Technology, and Washington University in Saint Louis. An ERISA case against the University of Pennsylvania was previously dismissed and is now under review in the Third Circuit.

Judge Forrest has since said her decision in the case is likely to come in July, writing "The court hereby informs the parties that it will not issue a decision in the above-captioned case before the commencement of its criminal trial in June."

The legal team at Shepherd, Finkelman, Miller & Shah, LLP ("SFMS") has significant experience litigating ERISA and class action matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

SFMS is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

Sources

Brill, Emily, "NYU Committee's Know-How Under Fire At ERISA Trial's End." Law 360. Last modified on May 16, 2018.

Brill, Emily. "Ruling in NYU ERISA Battle Likely To Come in July: Judge." Law 360. Last modified on May 24, 2018.

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