If these massive universities can screw up their retirement plans, your company could too

August 18, 2016by Hoy Grimm0

Massachusetts Institute of Technology, New York University and Yale were sued last week by employees who claim that they are getting shafted in 401(k) and 403(b) fees. Add Duke, Johns Hopkins, the University of Pennsylvania and Vanderbilt to the list as well. These schools produce the top physicians, inventors and lawyers in the country. Presidents and Nobel Laureates matriculated in their hallowed halls but they made big mistakes in their retirement plans that cost thousands of employees to lose millions in fees and expenses.

They all made similar mistakes:

[alert style=”danger”]1. Paid more than one record keeper for the same job.[/alert]

Duke University (38,000 employees with 4.7 billion dollars invested) paid TIAA, Vanguard, Fidelity and VALIC to provide record keeping services.
Vanderbilt (42,000 employees with 3.4 billion invested) used the exact same vendors as Duke

[alert style=”danger”]2. Included hundreds of unnecessary, overlapping investment options.[/alert]

Duke’s plan included 400 options.
Vanderbilt offered 340 investment options.
NYU had more than 100 options for employees.

[alert style=”danger”]3. Included funds with unreasonably high expenses and fees.[/alert]

Despite having billion dollar plans, these universities didn’t use their buying power to reduce costs for their workers. High fees compound as employees continue to add to their account and their employer didn’t act in their best interest to reign in the costs. Some plans offered annuity options that are notorious for high fees and costly surrender penalties.

[alert style=”danger”]4. Kept poor performers in the plan instead of replacing them.[/alert]

MIT, which is around the corner from Fidelity Investments in Boston favored their neighbor. More than half of the retirement plan investments available to their employees were Fidelity mutual funds.

Vanderbilt and Yale are likely in the most trouble. They recently changed their plans to reduce the number of investment options and consolidated record keeping to a single company. Vandy reduced the investment list from 340 choices to 14 and moved all the record keeping to Fidelity. Johns Hopkins fired two record keepers but still pays three for the same service. Yale employees have 3.6 billion in their retirement accounts in 2015 when the university consolidated to one record keeper and replaced some expensive funds with cheaper alternatives. These moves are an acknowledgement of their past transgressions. It will be up to the lawyers to sort out how much each university will pay to rectify matters.  

The heat bears down on Vanderbilt for neglecting their employees’ retirement plan investments.

If these massive, smart institutions can make such expensive errors, it stands to reason that your company probably has some junk in your 401(k) too. The thought of suing your boss isn’t a pleasant one and maybe someone else will do it for you. In the meantime, we can help you minimize the cost by showing you what your retirement plans expenses are and how to reduce them. That’s the basis of Purpose-Built Planning at LeConte.

Hoy Grimm

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