As a result of rulings on motions to dismiss within a day of each other (May 10 and 11, 2017, respectively), Emory University and Duke University must continue to defend claims challenging aspects of their Section 403(b) retirement plans in plaintiffs’ proposed class actions: Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920-CAP; and Clark v. Duke Univ., M.D.N.C., No. 1:16-cv-01044.  As we have previously reported, these cases are two out of a series of twelve proposed class actions filed against the retirement plans of 12 prominent American universities, challenging various aspects of plan management, including excessive fees and fiduciary prudence.

In granting in part and denying in part the Emory defendants’ motion to dismiss, Judge Charles Parnell found that the plaintiffs could move forward with a claim that choosing retail-class shares (with higher expense ratios) over institutional-class shares is imprudent.  The plaintiffs allege that Emory could have but did not use its bargaining power to negotiate lower cost fees, and that no reasonable fiduciary would become complacent in providing shares with higher fees.

A novel theory proceeding in both the Duke and Emory cases is the claim that the defendants were imprudent to hire multiple record keepers, where consolidating services with one record keeper could have resulted in lower fees for participants.

Plaintiffs in both cases also raised the novel theory that the defendants acted imprudently by offering too many investment options—111 at Emory, and more than 400 at Duke. Judge Catherine Eagles, who issued the ruling in the Duke case, allowed this claim to go forward.  In contrast, Judge Charles Parnell disagreed with the Emory plaintiffs.  In his ruling, he reasoned that “[h]aving too many options does not hurt the Plans’ participants, but instead provides them opportunities to choose the investments that they prefer.”  (Order, Doc. 61, p. 7, Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920-CAP (May 10, 2017)).

In Duke, the court dismissed as time-barred plaintiffs’ claims that Duke imprudently “locked” itself into offering TIAA-CREF products and recordkeeping, because the actual act of “locking” into the arrangement with TIAA-CREF occurred more than six years before the complaint was filed.  Judge Eagles disagreed with the plaintiffs’ argument that their claim is based on Duke “maintaining” the arrangement with TIAA-CREF, as though the failure to monitor and remove CREF stock from the plan were a continuing violation.

In contrast, the “locked in” claim is moving forward in Emory.  Emory made the same arguments that the “locked in” claim is time-barred; however, Judge Parnell was persuaded by plaintiffs’ argument that they challenge not just the initial arrangement, but the maintenance of the arrangement and failure to monitor and remove CREF stock within the six years preceding the complaint.  However, the Emory plaintiffs may only recover damages resulting from being “locked in” to TIAA-CREF that occurred within six years before the filing of the complaint.