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3rd Circ. Revives ERISA Class Action Against UPenn

3rd Circ. Revives ERISA Class Action Against UPenn

3rd Circuit Revives ERISA Class Action Against UPenn

By Emily Brill for

The Third Circuit breathed new life into a proposed Employee Retirement Income Security Act class action against the University of Pennsylvania on Thursday, reviving claims that the school’s retirement plan squandered workers’ savings on steep administrative fees and high-cost, low-return investment options.

In a 2-1 decision, the court revived two breach-of-fiduciary-duty claims against the university, writing that the proposed class of current and former Penn workers “plausibly alleged that Penn failed to conform to the high standard required of plan fiduciaries” when operating its retirement plan.

The suit accused Penn of allowing its plan to pay $4.5 million to $5.5 million in record-keeping fees when comparable plans were paying $700,000 to $750,000. The suit also accused the university of offering “high-cost investment options with historically poor performance” and failing to properly oversee the plan’s management.

Senior U.S. Circuit Judge Jane Richards Roth dissented from the majority’s opinion, writing that she would affirm U.S. District Judge Gene Pratter’s 2017 dismissal of the case.

Judge Roth said Judge Pratter got it right when he tossed all six counts of the proposed class action, saying Penn met ERISA’s fiduciary standards because its retirement plan offered a wide variety of investment options.

She framed the central question of the case as: “Does an ERISA plan fiduciary acting in good faith … have a duty to do more than provide a wide, reasonable, and low-cost variety of investment options for individual plan beneficiaries?” Judge Roth said her answer would be no.

The majority, however, said yes, agreeing with the Penn workers’ argument that ERISA also requires retirement plans’ investment options to be prudent.

Both the majority and Judge Roth based their decisions on an interpretation of the Third Circuit’s 2011 decision in Renfro v. Unisys Corp. , which outlined how courts should approach motions to dismiss ERISA fiduciary-breach claims.

Though judges must consider whether a plan provided enough investment options, they should also consider whether the investment options were good enough, the majority wrote.

Disagreeing with Judge Roth’s interpretation, the majority said Renfro doesn’t state that “providing a range of investment options satisfies a fiduciary’s duty.”

“Such a standard would allow a fiduciary to avoid liability by stocking a plan with hundreds of options, even if the majority were overpriced or underperforming,” the majority wrote.

“The law expects more than good intentions,” the majority added. “[A] pure heart and an empty head are not enough.”

The proposed class of Penn workers sued the university in August 2016.

The lead attorney for the proposed class, Jerome Schlichter of Schlichter Bogard & Denton LLP, said he was pleased the majority rejected a position that “would allow every fiduciary to select imprudent options as long as they had a mix of options.”

“We’ve maintained that that’s not the law, and the court agreed,” Schlichter said Thursday.

Counsel and representatives for the university did not immediately respond to requests for comment Thursday.

The proposed class is represented by Jerome J. Schlichter, Sean E. Soyars, Kurt C. Struckhoff and Michael A. Wolff of Schlichter Bogard & Denton.

The University of Pennsylvania, its investment committee and university human resources executive Jack Heuer are represented by Brian T. Ortelere, Christopher J. Boran, Matthew A. Russell and Michael E. Kenneally of Morgan Lewis & Bockus LLP.

The case is Jennifer Sweda et al. v. University of Pennsylvania et al., case number 17-3244, in the U.S. Court of Appeals for the Third Circuit.


The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.