Judge dismisses lawsuit alleging Northwestern mismanaged retirement plans


Daily file photo by Daniel Tian

Rebecca Crown Center, home of several University administrators’ offices. On Friday, a judge dismissed a lawsuit against Northwestern that alleged the University mismanaged employees’ retirement plans.

Jonah Dylan and Peter Kotecki

A United States district court judge dismissed a lawsuit Friday that alleged Northwestern mismanaged its employees’ retirement and voluntary savings plans.

In his opinion, Judge Jorge Alonso dismissed all seven of the plaintiffs’ counts and denied their recent motion to file a second-amended complaint.

“Plaintiffs’ amended complaint is massive: 287 paragraphs over 141 pages,” Alonso wrote in his opinion. “Most of plaintiffs’ allegations, though, are not specific to the defendants and the plans in this case.”

The Northwestern plaintiffs — including a staff nurse at Northwestern University Health Service and a former research assistant at the Office for Sponsored Research — originally filed the lawsuit in August 2016.

Plaintiffs alleged they were financially harmed because the retirement and voluntary savings plans included excessive or imprudent fee options. They argued that the defendants’ inclusion of these options prohibited the plaintiffs from being able to grow their retirement savings by investing in options that were prudent and had reasonable fees. Such options, the suit alleged, were not available and the defendants therefore did not satisfy their obligations as fiduciaries, or trustees.

NU’s defense was handled by the Chicago law firm Jenner & Block. Craig Martin, who served as lead counsel for the defense, said the dismissal was a “well-reasoned and just result.”

“The basic claim or allegation was that, without being very legal about it, was that Northwestern did not manage these (retirement) programs well,” he said. “And contrary to that, Northwestern’s approach to them has been quite good. They’re wonderful employee benefit programs and very consistent with recruiting and attracting talent to the university.”

The first count alleged that Northwestern breached its fiduciary duty partly because it allowed TIAA-CREF — a third-party service provider — to mandate that the CREF Stock Account be included in investment plan options. Plaintiffs argued that because that fund underperformed and charged an excessive expense ratio, it should not have been made available to plan participants. That count was dismissed for failure to state a claim.

The third count alleged that Northwestern breached its fiduciary duties by letting the plans pay record-keeping expenses through revenue sharing — in which mutual funds share some of the annual fees with the record keepers — and by allowing these fees to become excessive. It was dismissed because the allegations did not constitute a breach of fiduciary duty.

The fifth count, which alleged that the range of investment options was too broad and that some of the fees charged by the funds were too high, was also dismissed for failure to state a claim.

The second, fourth and sixth counts alleged breaches of fiduciary duty and claimed the defendants’ actions mentioned in counts one, three and five were also prohibited by the Employee Retirement Income Security Act of 1974, which establishes minimum standards for most voluntarily established pension plans in private industry. These counts were dismissed because the judge ruled the fees were reasonable.

The seventh count alleged the defendants failed to monitor fiduciaries prudently, directly resulting in the loss of tens of millions of dollars in retirement savings. However, because plaintiffs did not respond to the defendants’ move to dismiss this count, the court deemed the claim abandoned.

In addition to dismissing the seven counts, Alonso rejected four more proposed counts.

In the past two years, the firm Schlichter Bogard & Denton has filed lawsuits on behalf of employees at many universities — including Northwestern — alleging the institutions charged excessive and unreasonable fees for their retirement plans. Some of the lawsuits, such as one against the University of Pennsylvania, were dismissed. A similar lawsuit against New York University, meanwhile, is set to go to trial.

Last week, the University of Chicago settled a similar lawsuit — in which the plaintiffs were represented by a different firm than Northwestern’s plaintiffs — for $6.5 million, becoming the first of about 20 universities to settle after allegations of employee retirement plan mismanagement.

Jerry Schlichter, a managing partner at Schlichter Bogard & Denton, said the firm plans to file a motion to reconsider.

“We continue to believe that Northwestern employees and retirees have been paying excessive fees and that employees in billion dollar plans should not be paying retail fees when there are other, lower-cost, identical options available,” Schlichter said. “We intend to continue to pursue this on behalf of the employees and retirees of Northwestern.”

Rishika Dugyala contributed reporting.

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