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Contributions may be made through elective deferrals, non-elective deferrals from employer contributions and after-tax contributions.
If the non-profit employer offers an employer matching contribution or other non-elective contribution, then the plan must comply with ERISA and its regulations.
Essentially, Section 403(b) plans are much like 401(k) plans sponsored by private employers.
Individual accounts in a Section 403(b) plan – also known as a tax-sheltered annuity (TSA) plan – can be an annuity contract provided through an insurance company, a custodial account invested in mutual funds, or a retirement income account set up for employees through either annuities or mutual funds.
While these new lawsuits resemble the 401(k) plan excessive fee cases against for-profit companies, they are also novel in that they focus on the universities’ Section 403(b) retirement plans, which historically have not been a target of ERISA challenges.
Notably, over the past year, several additional “copycat” suits have been filed against other universities by plaintiffs’ attorneys other than the Schlichter firm.
As a result, the court’s opinion in the After four court rulings on the motions to dismiss, a consensus of the types of claims that will likely survive the pleading stage has begun to surface.
Each of these courts have permitted most of Plaintiff’s claims related to the duty of prudence to survive, including the claims that (i) the universities’ processes in selecting the service providers were flawed, (ii) the processes for monitoring the revenue sharing that existed for service providers were flawed, (iii) the processes for maintaining multiple service providers violates ERISA and (iv) the processes for continuing to offer investment options with high fees and poor performance breaches the fiduciaries’ duties.
Like private employers who often feared legal challenges to the administrative fees in their 401(k) plans, universities, as well as other non-profit entities, must start considering their options related to their 403(b) plan investments and administrative fees.
To date, only three district courts – the Middle District of North Carolina, the Northern District of Georgia and, most recently, the Southern District of New York – have ruled on the motions and dismissed some of the class claims against the universities.
However, the bulk of the claims alleging that the fiduciaries breached their duties of prudence in monitoring or investigating investment options, administrative fees and costs have survived.
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