USC retirement plan trial begins

A class-action lawsuit alleges USC caused the loss of hundreds of millions of dollars in retirement savings as a result of negligent administration of its Defined Contribution Retirement Plan and its Tax-Deferred Annuity Plan. While USC employees and retirees filed the suit in 2016 as part of a series of similar cases involving institutions such as Yale University, Columbia University, Brown University, the Massachusetts Institute of Technology and Northwestern University, the eight-day bench trial starts today.

The suit alleges the University breached fiduciary duty and the Employee Retirement Income Security Act of 1974 by maintaining overly risky investments and excessive recordkeeping fees in its retirement plan package, going back to at least 2010. Over 30,000 employees and retirees were affected, said plaintiff attorney Jerry Schlichter.

As plan fiduciary, the University has a responsibility to make investment decisions solely in the benefit of participants. This includes maintaining reasonable administrative fees and prudent investments. Moreover, the University plan — with more than 1 billion dollars in assets — is in the largest 0.05% of contribution plans in the United States and falls under the category of a “jumbo plan.” This gives the plan “tremendous bargaining power in the marketplace” to ensure high-quality management services at a low cost, the suit states.

The lawsuit alleges the University acted for the benefit of the plan’s service providers and failed to remove funds — such as the CREF Stock Account and TIAA Real Estate Account — even though they had a history of under-performance. The suit also alleges the University failed to leverage the plan’s bargaining power to reduce administrative expenses.

USC’s investment advisors, CAPTRUST Financial Advisors,  conducted an initial analysis of the plan’s performance in 2014. The firm informed the University that three of the four active recordkeepers — including Fidelity and Vanguard — charged high recordkeeping fees, among the other conclusions and recommendations, such as which funds to keep. 

While the University followed CAPTRUST’s recommendations and removed funds that did not meet plan criteria, losses could have been prevented if a similar analysis had been conducted by at least 2009, the suit claims.

The lawsuit aims to restore all losses resulting from USC’s mismanagement and any profit the University made from the use of the plan’s assets, in addition to any other compensation the court deems appropriate.

“[Plaintiffs] are seeking compensation for those losses and the money that could have been earned if the fees had not been excessive or the investments improved,” Schlichter said. “We’re also seeking to reform the plan for the future to benefit employees going forward.”

In a statement to the Daily Trojan Friday, the University said it is committed to its employees and retirees.

“We are committed to supporting the retirement savings of our employees and offer a generous retirement program,” the statement read. “We look forward to telling our story at the trial.”

Various similar lawsuits that St. Louis based firm Schlichter Bogard & Denton filed in 2016 — including those against Brown, MIT and Columbia — have been settled for $3.5 million, $18.1 million and $13 million, respectively. The U.S. Supreme Court ruled unanimously in favor of the Northwestern University employees and retirees the firm represented in January 2022.

Schlichter was sanctioned for $1.5 million by the U.S. District Court in Colorado in August 2022 for “recklessly pursuing” a lawsuit regarding a fiduciary breach in Great-West Capital Management’s retirement plan.