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Duke University Lawsuit

Plaintiffs in this case allege that due to the university’s breach of fiduciary duties, the Duke University 403(b) Plan lost more than $1 million. Plaintiffs claim injury as their account balances would have been higher had Duke not assumed revenue sharing from the plan’s investment options for its own benefit rather than allocating among participant accounts. The complaint suggests that a prudent fiduciary that ‘“allows revenue sharing to pay for recordkeeping monitors the amount of revenue sharing the recordkeeper receives each year, and limits that compensation to a reasonable, fixed level by obtaining rebates of any revenue sharing amounts that exceed that level.”’

Plaintiffs assert that as early as 2010, Duke knew that the plan’s investments were providing revenue sharing that overpaid for the recordkeeping services provided by its three recordkeepers – TIAA, VALIC, and Fidelity – by over $3.5 million per year. Arrangements with the recordkeepers allowed for reimbursement to Duke for its own plan related expenses, such as paying over $1.5 million in salaries and fringe benefits for Duke human resources employees – expenses that Duke previously assumed.

The lawsuit states that Duke began returning excess revenue sharing to the plan for allocation to participant accounts in 2014 through revenue credit programs with Fidelity and TIAA. However, these programs allowed for allocation of the monies remaining after Duke paid itself for the salaries and fringe benefits of its employees and other expenses, and that there was no allocation of amounts representing excess revenue sharing from previous years. The lawsuit also claims that Duke did not cease paying itself until August 2016, upon learning that plaintiffs’ attorneys were investigating fiduciary breaches.

This lawsuit is the second filed against Duke University for breach of fiduciary duties in its 403(b) plan. The first lawsuit, which was filed in 2016, alleged that the University did not use the Plan’s bargaining power with regard to administrative, recordkeeping or investment management services, resulting in excessive fees for such services. Further, the University was accused of selecting poorly performing and excessively expensive investments for the Plan.

www.planadviser.com; August 22, 2018.