Excessive-Fee Lawsuits in 403(b) Plans

Plan sponsors may have become aware recently that three elite universities – Yale University, New York University, and MIT – were sued by plaintiffs claiming their defined-contribution plans charged employees excessive plan fees and thereby causing plan participants to overpay millions of dollars in retirement savings. Since then Duke, Johns Hopkins, University of Pennsylvania, and Vanderbilt have found themselves embroiled in similar lawsuits. Both Yale and NYU’s claims come against their 403(b) plans, while MIT’s come against their 401(k) plan. NYU and Yale are both private universities, and as such, their 403(b) plans falls under ERISA. However, this is still one of the first cases where 403(b) plans find themselves under fire for such a claim leading some to conclude this litigation is the latest evidence that the new fiduciary standards, with their emphasis on reasonable compensation, from the qualified plan market may be creeping into the 403(b) world in a manner unanticipated by regulators. All of these suits come against private universities that fall under ERISA and ERISA does not cover government plans, such as public schools 403(b) plans, but all 403(b) plan participants are rightfully becoming more concerned about plan fees and finding lower cost retirement products.

Plan sponsors should be wary of their plan participant concerns and look to retirement product providers, such as the insurance companies of National Life Group, that provide no fee products. Fixed annuities provide such an option, where low cost products are at a premium due to the regulatory environment and recent changes in the law. Plan sponsors should be aware that fixed annuities, whether indexed or fixed rate, have no fees, but do have surrender charges depending on the length of time the investor holds a given product that can impact returns. Fixed annuities provide policyholders with protection against the volatility of the market and have guarantees1 that protect principal2, making them ideal for the conservative retirement saver. Fixed indexed annuities maintain the same protection of principal as other fixed annuities and do not directly participate in exposure to stock or equity investments.  However, they can provide for interest rate changes based on the performance of major stock indexes with a guaranteed1 floor of 0%.

Moving forward, annuities issued through the insurance companies of  National Life Group, which charge no fees except for optional benefit riders,3 have the opportunity to provide a large number of retirement savers with great, low cost investment options and plan sponsors should be aware of their benefits.


1 Guarantees are dependent upon the claims-paying ability of the issuing company
2 Assumes no withdrawals
3 Riders may not be available in all states or on all products


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