May 25, 2018

Jenner & Block won a significant victory for Northwestern University when a judge dismissed with prejudice a proposed class action that accused the university of mismanaging workers’ retirement savings.

In their complaint, the plaintiffs objected to, among other things, the mix of investment options available in the plans.  According to the opinion by US District Judge Jorge L. Alonso, the plaintiffs alleged that they had too many options, leaving them with the “virtually impossible burden” of deciding where to invest their money.  All of the plaintiffs participate in the Northwestern University Retirement Plan; three of them participate in the Northwestern University Voluntary Savings Plan. 

Seeking relief under the Employee Retirement Income Security Act (ERISA), the plaintiffs asserted six counts for breach of fiduciary duty and one count for failure to monitor fiduciaries. 

Regarding the plaintiffs’ complaint that the range of investment options was too broad and that the fees charged by some funds were too high, Judge Alonso wrote: “Once again, the Court cannot conclude that these allegations add up to a breach of fiduciary duty.  Plaintiffs spend much of their lengthy amended complaint describing their clear preference for low-cost index funds, and the Court does not dispute that their preference is becoming conventional wisdom.  Plaintiffs might have a different case if they alleged that the fiduciaries failed to make such funds available to them.  Plaintiffs, though, allege that those types of low-cost index funds were and are available to them.”

Referring to one complaint about an investment option called TIAA-CREF (Teachers Insurance and Annuity Association of America and College Retirement Equities Fund), the judge noted that the plaintiffs alleged that Northwestern breached fiduciary duty by “allowing TIAA-CREF to mandate the inclusion of the CREF Stock Account and Money Market Account” in the plans and by allowing TIAFF-CREF to require the plans to use TIAA-CREF as record keeper for its proprietary funds.  They did not want the CREF Stock Account included as an investment option because the fund underperformed and charged what the plaintiffs considered to be an excessive expense ratio compared to other funds.

“The Court fails to see how these allegations amount to a breach of fiduciary duty. To begin with, no plan participant was required to invest in the CREF Stock fund or any other TIAA-CREF product. (Am. Complt. ¶ 42). Thus, any plan participant could avoid what plaintiffs consider to be the problems with those products (excessive record-keeping fees and underperformance) simply by choosing other options,” according to the opinion.

“Ultimately,” the judge added, “the plaintiff’s theory is paternalistic, but ERISA is not.”

The team representing Northwestern was led by Partners Craig C. Martin and Amanda S. Amert.