Miami, FL On April 5, the four named plaintiffs in Santiago v. University of Miami asked the Southern District of Florida to certify a class of roughly 16,000 beneficiaries of and participants in the University of Miami Savings Plan. Their ERISA lawsuit alleges that the University breached its duties of loyalty and prudence by permitting the Plan to incur unreasonable and excessive administrative fees by failing to engage in an appropriate process designed to evaluate and monitor administrative expenses.
As recommended by the Magistrate Judge, the Southern District of Florida had previously dismissed two of the original three counts. One count claimed that the fundamental failure caused the named plaintiffs to pay excessive fees; the other that the fiduciaries selected and retained underperforming investment options. If they are certified as representatives of the class, however, the named plaintiffs will argue that they have standing to bring these additional claims on behalf of the entire proposed class.
Failure to control recordkeeping costs
The University offers a defined-contribution retirement plan to its employees under Section 403(b) of ERISA. The Plan is the primary source of retirement income for many of the eligible employees who choose to participate. The Plan, itself, functions very like a 401k plan. The University chooses a menu of investment options among which the participants direct their own contributions.
The University controls management of the Plan, including the hiring of third-party recordkeepers, but the cost of these services is passed on to the participants. Fiduciaries typically try to control costs by:
soliciting competitive bids at regular intervals;
negotiating recordkeeping fees based on a fixed dollar amount per participant;
monitoring revenue sharing arrangements; and
requiring rebates of excessive revenue sharing compensation to the plan.
The four named plaintiffs, Augustino Santiago, Lilly Leyva, Guillermo Creamer, and Maria Aceituno, are Plan participants. They allege that the fiduciaries failed to have such a process in place. Further, they claim that the Plan had as many as six recordkeepers, which led to duplicate services and fees.
ERISA duties of loyalty and prudence
ERISA imposes twin duties of prudence and loyalty on retirement plan fiduciaries. The duty of loyalty requires fiduciaries to act solely in the interest of the participants and beneficiaries for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan. It prohibits trustees from engaging in transactions that involve self-dealing or that otherwise involve or give rise to conflict between the fiduciary duties and personal interests.
The duty of prudence mandates that a pension plan fiduciary act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Individual trustees must use appropriate methods to investigate the merits of the investment and to structure the investment. The standard is an objective one, and the fiduciary's own lack of experience or good faith efforts do not excuse a failure to act with act with the necessary care, skill, prudence, and diligence.
Class action status
In order to proceed as a class action ERISA lawsuit, the named plaintiffs would have to satisfy the Southern District of Florida, that:
the number of individual plaintiffs involved is so great that joining them all in one lawsuit is impracticable (numerosity);
the claims of all involve common questions of law and fact (commonality);
each member of the class has the same interests or has suffered the same injury (typicality); and
the named plaintiffs can adequately represent the interests of the class (adequacy).
Courts also evaluate the risk of inconsistent decisions should cases be pursued individually and whether proceeding in a class action lawsuit is an efficient way to use judicial resources. General commentary around Santiago acknowledges that the numerosity requirement has been met. The remaining three may be the source of further argument.
ERISA lawsuits against university retirement plans
This ERISA lawsuit tracks arguments familiar from many retirement plan lawsuits filed against universities. The original Complaint freely acknowledges its similarity to Clark v. Duke University, which ultimately settled for $10,650,000.
Between 2016 and 2020, approximately 20 universities were reportedly sued over fees and the menu of investment options offered. MIT settled for $18.1 million; Vanderbilt for $14.5 million; Johns Hopkins $14 million; and the University of Pennsylvania for $13 million.
On the other hand, NYU defeated a similar lawsuit. Others, like an ERISA lawsuit against Washington University, have dragged on for years.
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