Elite Universities Allowed Employees To Be Ripped Off In Retirement Plans

For educational institutions of higher learning, some of our elite colleges seem to have a pretty difficult time making sure their employees are not getting ripped off in their retirement plans. MIT, Yale, and NYU have all been sued in a class action case that claims that the universities allowed their employees to be charged excessive management fees for their retirement plans. The suit involves 403(b) plans which are similar to 401(k) plans but for nonprofit institutions. The allegations claim that the universities, as the retirement plan sponsors, failed to make sure the employees were not being charged excessive fees. The universities also failed to remove clearly non-performing funds with higher fees for equivalent or higher performing funds with lower fees. In addition, the schools sometimes had multiple record-keepers that resulted in higher administrative fees for employees. The suit claims that the universities cost employees tens of millions of dollars if they had used their bargaining power to reduce fees and pared their investment options.

MIT, in particular, was singled out for its use of Fidelity for its retirement plan. The university did not conduct a search for a provider that could have provided the best services for less but simply just chose to use Fidelity. Fidelity had donated hundreds of thousands of dollars to MIT and Fidelity’s chief executive also sat on the MIT Board of Trustees, allowing her to influence the university’s decision. The Fidelity plan offered an incredible 340 investment options of which over half were Fidelity funds. Had the university offered a pared down list of investment options, participants would have saved more than $8 million in 2014 alone. Yale and NYU had a similar problem with large investment options but also had the additional issue of multiple record keepers. The suit makes no allegation about why that may have occurred, but I don’t think anyone would be shocked to find out that some of those record keepers had principals who were alumnae and/or donors to the universities.

Even at these bastions of supposed liberalism, the treatment of employees seems to be no better than in the private sector. If anything, employee retirement plans should be an area that should be closely monitored for performance and fees. It is, after all, your employees’ future at stake. But, even at these prestigious universities, it is just another opportunity for Wall Street to rip off the little guy with the schools as apparently willing enablers. Hopefully, this suit will be a wake-up call for not only non-profits but also the private sector to make sure their retirement plans are fair and efficient.