Duke will switch its primary retirement plan provider to Fidelity beginning in January 2019, according to a DukeToday release.
The decision comes as Duke faces a pending class-action lawsuit filed in August 2016 that alleges mismanagement of the University's retirement plan. The lawsuit argued that the retirement plan violated the Employee Retirement Income Security Act, which states that the plan provider has a "fiduciary duty" to the beneficiaries of the retirement plan.
The complaint cited "greatly excessive fees for recordkeeping" and underperforming investment options as two pieces of evidence for the mismanagement.
A May 2017 ruling issued by Catherine C. Eagles of the U.S. District Court for the Middle District of North Carolina denied the University's request to dismiss the lawsuit. This month, Eagles asked both parties to update their arguments to clarify whether the employees have standing to sue over two of the investment options, according to Bloomberg BNA. The University has previously argued that the plaintiffs have not actually invested in the funds they are suing over and that the lawsuit has no standing.
Jerome Schlichter, the attorney who is bringing the retirement plan case against Duke, explained that the parties were currently taking depositions and that a trial date has not been set. However, he said that it was possible the case would go to trial before the end of the year.
“Duke provides a range of options that give employees flexibility in designing retirement plans to meet their individual needs,” wrote Michael Schoenfeld, vice president for public affairs and government relations, in an email in August 2016. “These investments are reviewed and carefully managed in accord with federal law to provide low costs and good outcomes for our employees. We will continue to commit to these guiding principles.”
But Duke is now pivoting to revamp the retirement plan. Two of the current four service providers—Vanguard and VALIC—will no longer be offered starting in 2019, and TIAA will offer only its fixed annuity product.
The new plan will offer three tiers of investments. Tiers 1 and 2 will be monitored by Duke's Investment Advisory Committee, with Tier 1 featuring Vanguard's Target Date Funds and Tier 2 including stocks and bonds. Tier 3, which is not managed by the advisory committee, involves a Fidelity brokerage account that provides the opportunity for a variety of investments.
Schlichter noted that although he had not studied the plan in depth, it did appear to be an improvement.
“Some of the changes that they’ve made are along the lines of what we’ve said need to be changed in order to address items that we’re pointing out,” he said.
“These changes will not impact Duke’s contribution formula or how much individuals can contribute under the IRS threshold,” said Kyle Cavanaugh, vice president for administration, in the press release. “Duke’s retirement plan continues to be one of the most competitive plans across the country.”
Duke does not stand alone in controversy over its retirement plan, as many peer institutions have weathered lawsuits alleging improper management of their plans.
In August 2016, the law firm Schlichter, Bogard & Denton LLP also filed lawsuits against Yale University, New York University, Vanderbilt University, the University of Pennsylvania and the Massachusetts Institute of Technology. Since then, the University of Chicago, Johns Hopkins University and Princeton University have also been taken to court over questionable retirement plans.
“Our contention is Duke has not [run the retirement plan for the sole benefit of employees]," Schlichter said. "In order to correct this, the employee sand retirees should be—and are under the law—entitled to compensation for the past losses that prevented them from building their retirement assets to the extent that they should have been able to."
Editor's Note: This article was updated March 28 with Schlichter's commentary.
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