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Sacerdote v. New York University

United States District Court, S.D. New York

July 31, 2018

DR. ALAN SACERDOTE, DR. HERBERT SAMUELS, MARK CRISPIN MILLER, PATRICK LAMSON-HALL, MARIE E. MONACO, DR. SHULAMITH LALA STRAUSSNER, and JAMES B. BROWN, individually and as representatives of a class of participants and beneficiaries on behalf of the NYU School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration and the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration, Plaintiffs,
v.
NEW YORK UNIVERSITY, Defendant.

          OPINION & ORDER

          KATHERINE B. FORREST UNITED STATES DISTRICT JUDGE

         Each week, to ensure a more secure future, employees throughout the United States contribute portions of their paychecks to retirement savings accounts. An employer sponsoring a retirement plan becomes a fiduciary under the Employee Retirement Income Savings Act (“ERISA”) and is required to act vis-à-vis a plan with the care, skill, and diligence that a prudent person would use in a similar situation. See Tibble v. Edison Int'l, 135 S.Ct. 1823, 1828 (2015). Employees rely on such fiduciaries to perform their duties with appropriate dedication and attention. The fiduciary duty imposed by ERISA reflects congressional recognition of the importance of workers' retirement savings.

         Plaintiffs here are employees of New York University (“NYU”) who claim that NYU, through its Retirement Plan Committee (the “Committee”), failed to fulfill certain of its fiduciary obligations under ERISA. According to plaintiffs, NYU's imprudence resulted in losses totaling more than $358 million. They are one of at least eleven groups of plaintiffs-all represented by the same counsel-asserting ERISA claims against their university-employers.[1] This is the first of those cases to proceed to trial.

         Plaintiffs assert that the Committee breached its duty of prudence with regards to two NYU retirement plans: the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration (the “Faculty Plan”) and the New York University School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration (the “Medical Plan”) (together, the “Plans”). The same Committee oversees both Plans. Plaintiffs' first claim is that the Committee imprudently managed the selection and monitoring of recordkeeping vendors resulting in excessively high fees. According to plaintiffs, the Committee could have reduced such fees by “consolidating” its use of two recordkeepers into one, and also by negotiating a lower overall rate. Plaintiffs include in this claim arguments that the Committee: (1) failed to prudently manage a request-for-proposal (“RFP”) process relating to recordkeeping vendors; (2) failed to allow respondents to propose pricing for all Plan assets (versus only non-annuity assets); and (3) had pre-determined that TIAA (already a recordkeeper for annuity assets) was the favored vendor.

         Plaintiffs' second claim is that the Committee acted imprudently by failing to remove the TIAA Real Estate Account and the CREF Stock Account as investment options (thereby continuing to allow plaintiffs to invest in such funds). Plaintiffs assert that the Committee used confusing and inappropriate financial benchmarks to review their performance and that these funds objectively underperformed, resulting in significant losses.

         After careful review of the record, the Court finds by a preponderance of the evidence that while there were deficiencies in the Committee's processes-including that several members displayed a concerning lack of knowledge relevant to the Committee's mandate-plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result.

         Accordingly, the Court finds in favor of NYU on all claims.

         I. PROCEDURAL HISTORY

         This action was far more expansive at the time of initial filing. The first complaint, filed on August 9, 2016, contained seven counts.[2] In a decision dated August 25, 2017, the Court dismissed several claims in the Amended Complaint, (ECF No. 39), leaving only the two which proceeded to trial. Sacerdote v. New York Univ., No. 16-cv-6284, 2017 WL 3701482 (S.D.N.Y. Aug. 25, 2017).

         On February 13, 2018, the Court certified a class consisting of:

All participants and beneficiaries of the NYU School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration and the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration from August 9, 2010, through the date of judgment, excluding the Defendant and any participant who is a fiduciary to the Plans.

Sacerdote v. New York Univ., No. 16-cv-6284, 2018 WL 840364, at *7 (S.D.N.Y. Feb. 13, 2018). The “Class Period” is therefore August 9, 2010 to the present.

         The Court held an eight-day bench trial in April 2016; post-trial submissions were filed on May 13, 2018 and closing arguments were held on May 16, 2018. Twenty witnesses testified at trial (seventeen by trial declaration, [3] with live cross and redirect, and three by deposition designation), including: named plaintiffs (Marie Monaco, [4] Alan Sacerdote, [5] Mark Crispin Miller, [6] and Shulamith Straussner[7]); six former and current members of NYU's Retirement Committee (Margaret Meagher, [8] Nancy Sanchez, [9] Patricia Halley, [10] Tina Surh, [11] Martin Dorph, [12] and Linda Woodruff[13]); two NYU staff members (Mark Petti[14] and Susanna Hollnsteiner[15]); one TIAA representative (Douglas Chittenden[16]); one Vanguard representative (George Heming[17]); and one Cammack LaRhette Consulting (“Cammack”) representative (Jan Rezler[18]). Plaintiffs also called two expert witnesses: Michael Geist[19] and Gerald Buetow.[20] NYU called three expert witnesses: Marcia Wagner, [21] Daniel Fischel, [22] and Dr. Lassaad Adel Turki.[23] The Court also received over six hundred documents into evidence.

         II. LEGAL PRINCIPLES[24]

         To prove a breach of the duty of prudence, plaintiffs bears the burden of showing: (1) that NYU failed to engage in a prudent process (here, with specific regard to how it monitored recordkeeping fees and certain investment options); and (2) that, on an objective basis, such breaches led to Plan losses. Plaintiffs have failed to carry their burden.

         A. ERISA Generally

         Under ERISA, the duties owed by fiduciaries to plan participants “are those of trustees of an express trust-the highest known to the law.” Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982). ERISA § 404(a)(1) (codified at 29 U.S.C. § 1104(a)(1)) imposes twin duties of prudence and loyalty on fiduciaries of retirement plans. The duty of loyalty-not principally at issue in this case-is codified in ERISA § 404(a)(1)(A). It requires fiduciaries to act “solely in the interest of the participants and beneficiaries, ” and “for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan.” ERISA § 404(a)(1)(A). “The most fundamental duty owed by the trustee to the beneficiaries of the trust is the duty of loyalty. . . . It is the duty of a trustee to administer the trust solely in the interest of the beneficiaries.” Pegram v. Herdrich, 530 U.S. 211, 224 (2000) (internal quotation omitted).

         The duty of prudence requires a fiduciary to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” ERISA § 404(a)(1)(B). The “prudent person” standard asks whether “the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment.” Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir. 1984) (quoting Donovan v. Mazzola, 716 F.2d 1226, 1232 (9th Cir. 1983), cert. denied, 464 U.S. 1040 (1984); see also Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc. (PBGC), 712 F.3d 705, 716 (2d Cir. 2013) (noting that the standard “focus[es] on a fiduciary's conduct in arriving at an investment decision, not on its results, and ask[s] whether a fiduciary employed the appropriate methods to investigate and determine the merits of a particular investment” (quoting In re Unisys Sav. Plan Litig., 74 F.3d 420, 434 (3d Cir. 1996)) (alterations in PBGC)). “In short, ERISA's ‘fiduciary duty of care . . . requires prudence, not prescience.'” PBGC, 712 F.3d at 716 (quoting DeBruyne v. Equitable Life Assurance Soc'y of the U.S., 920 F.2d 457, 465 (7th Cir. 1990)). Fiduciaries' prudence is measured against an objective standard, and their own “lack of familiarity with investments is no excuse” for failing to act with the care, skill, prudence and diligence required under the circumstances then prevailing. Katsaros, 744 F.2d at 279. Participants may bring civil actions for failures in fiduciary performance. 29 U.S.C. § 1132(a)(2). An action under § 1132(a)(2) is “brought in a representative capacity on behalf of the plan.” L.I. Head Start Child Dev. Servs. v. Econ. Opportunity Council of Suffolk, Inc., 710 F.3d 57, 65 (2d Cir. 2013) (quoting Coan v. Kaufman, 457 F.3d 250, 257 (2d Cir. 2006)).

         B. Principles Related to an Imprudent Process Claim

         A fiduciary breaches its duty of prudence when it fails to “employ[] the appropriate methods” in making investment decisions. See Katsaros, 744 F.2d at 279 (quoting Mazzola, 716 F.2d at 1232).

Pursuant to ERISA implementing regulations, promulgated by the Secretary of Labor, a fiduciary's compliance with the prudent-man standard requires that the fiduciary give “appropriate consideration” to whether an investment “is reasonably designed, as part of the portfolio . . . to further the purposes of the plan, taking into consideration the risk of loss and the opportunity for gain (or other return) associated with the investment.”

PBGC, 712 F.3d at 716 (quoting 29 C.F.R. § 2550.404a-1(b)(2)(i)). Fiduciaries should consider the prudence of each investment as it relates to the portfolio as a whole, rather than in isolation. Id., 712 F.3d at 717. Accordingly, courts must look to “not only to [a fiduciary's] investigation procedures, but also to the methods used to carry out those procedures as well as the thoroughness of their analysis of the data collected in that investigation.” Chao v. Tr. Fund Advisors, No. Civ. A. 02-559, 2004 WL 444029, at *3 (D.D.C. Jan. 20, 2004); see also Henry v. Champlain Enters., Inc., 445 F.3d 610, 620 (2d Cir. 2006) (holding that a failure to produce notes documenting an investigation did not, on its own, indicate that the defendant failed to employ an “appropriate method”); United States v. Mason Tenders Dist. Council of Greater N.Y., 909 F.Supp. 882, 890 (S.D.N.Y. 1995) (holding that a fiduciary failed to discharge its obligation to investigate various purchases of property).

         C. Principles Relevant to Monitoring and Removing Investments

         Fiduciaries have a “continuing duty to monitor investments and remove imprudent ones[.]” Tibble, 135 S.Ct. at 1829. This means that a fiduciary “cannot assume” that investments that were prudent at one time “will remain so indefinitely.” Id. at 1828 (quoting A. Hess, G. Bogert & G. Bogert, Law of Trusts and Trustees (“Bogert 3d”) § 684, pp. 145-146 (3d ed. 2009)). Rather, the fiduciary “must ‘systematic[ally] conside[r] all the investments of the trust at regular intervals' to ensure that they are appropriate.” Id., 135 S.Ct. at 1828 (quoting Bogert 3d § 684) (alterations in Tibble). In short, a fiduciary “‘who simply ignores changed circumstances that have increased the risk of loss to the trust's beneficiaries is imprudent.'” PBGC, 712 F.3d at 717 (quoting Armstrong v. LaSalle Bank Nat'l Ass'n, 446 F.3d 728, 734 (7th Cir. 2006)).

         In order to prevail in their claims here, plaintiffs bear the burden of establishing that the Plans suffered a loss due to the breach. Silverman v. Mutual Ben. Life Ins. Co., 138 F.3d 98, 104 (2d Cir. 1998). Specifically, under ERISA:

Any person who is a fiduciary . . . who breaches any of the responsibilities, obligations, or duties . . . shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.

29 U.S.C. § 1109(a) (emphasis added); see also PBGC, 712 F.3d at 730 (noting that a claim for breach of fiduciary duty under ERISA requires an alleged loss to the plan at issue); Mira v. Nuclear Measurements Corp., 107 F.3d 466, 473 (7th Cir. 1997) (“In light of our holding that the plaintiffs suffered no economic loss, we hold that this case falls within the ‘no harm, no foul' rule. It is a longstanding principle in civil law that there can be no monetary recovery unless the plaintiff has suffered harm.”); Silverman, 138 F.3d at 105 (“Causation of damages . . . is an element of the claim, and the plaintiff bears the burden of proving it.”).

         Therefore, even if plaintiffs had established that NYU did not follow a prudent process in monitoring administrative fees and investments (which, as discussed below, they have failed to do), in order to be entitled to recover damages, the Plan(s) must have also suffered a causally related loss.[25] ERISA § 404(a)(1)(B); see also Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 919 (8th Cir. 1994) (“Even if a [fiduciary] failed to conduct an investigation before making a decision, he is insulated from liability if a hypothetical prudent fiduciary would have made the same decision anyway.”).

         D. Principles Particularly Relevant to Excessive Fee Claims

         A fiduciary also has the responsibility of ensuring that fees paid to recordkeepers are not excessive relative to services rendered. Young v. Gen. Motors Inv. Mgmt. Corp., 325 Fed. App'x 31 (2d Cir. 2009). In Young, the Second Circuit held that a prudence claim based on excessive fees must be supported by facts that take the particular circumstances into account. Id., 325 Fed. App'x at 33 (citing Gartenberg v. Merrill Lynch Asset Mgmt., 694 F.2d 923, 928 (2d Cir. 1982) and Krinsk v. Fund Asset Mgmt., Inc., 875 F.2d 404, 409 (2d Cir. 1989)). These facts may go to fiduciaries' “independence and conscientiousness, ” Krinsk, 875 F.2d at 409, and they may tend to show whether a fiduciary failed to adequately tether fees to services rendered or employed an imprudent process. ERISA does not dictate “any particular course of action” with regards to fees, but it does require a “fiduciary . . . to exercise care prudently and with diligence under the circumstances then prevailing.” Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (internal quotation omitted). For example, competitive bidding is not per se required under ERISA, but it can be an example of an action taken to ensure fees are appropriate. See White v. Chevron Corp., 16-cv-0793, 2016 WL 4502808, at *14 (N.D. Cal. Aug. 16, 2016); see also George v. Kraft Foods Glob., Inc., 641 F.3d 786, 800 (7th Cir. 2011) (holding “a trier of fact could reasonably conclude that defendants did not satisfy their duty to ensure that [the recordkeeper's] fees were reasonable” where plan fiduciaries failed to, inter alia, solicit competitive bidding for more than fifteen years). As with other ERISA claims, plaintiffs must show that demonstrated imprudence in fact “resulted in monetary loss.” George, 641 F.3d at 797.

         E. Reliance Between and Among Fiduciaries

         As discussed below, in April 2009, the Committee retained Cammack to act as an investment advisor to the Committee; Cammack thus became a co-fiduciary.[26] During the trial, certain witnesses testified that they-in effect-assumed that on financial issues (which constituted a significant portion of the Committee's mandate), they could defer virtually entirely to Cammack for expertise and information and rely on its recommendations. This is incorrect.

         The hiring or appointment of a co-fiduciary does not relieve the original fiduciary of its independent duties; no fiduciary may passively rely on information provided by a co-fiduciary. Bierwirth, 680 F.2d at 272. A fiduciary who delegates fiduciary responsibilities nonetheless retains a duty to exercise prudence “in continuing the allocation or designation.” 29 U.S.C. § 1105(c)(A)(iii). In this regard, good old-fashioned “kicking the tires” of the appointed fiduciary's work is required: “ERISA's duty to investigate requires fiduciaries to review the data a consultant gathers, to assess its significance and to supplement it where necessary.” In re Unisys, 74 F.3d at 435. “In order to rely on an expert's advice, a ‘fiduciary must (1) investigate the expert's qualifications, (2) provide the expert with complete and accurate information, and (3) make certain that reliance on the expert's advice is reasonably justified under the circumstances.'” Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 301 (5th Cir. 2000) (quoting Howard v. Shay, 100 F.3d 1484 at 1489 (9th Cir. 1996)); see also Hugler v. First Bankers Tr. Servs., Inc., No. 12-cv-8649, 2017 WL 1194692, at *11 (S.D.N.Y. Mar. 30, 2017) (outlining the same three requirements).[27]

         Put otherwise, Cammack's appointment does not now and never has entitled the Committee or its members to unthinkingly defer to Cammack's expertise-even when Cammack was hired because it possessed expertise Committee members did not. To fulfill their duties, the Committee members must meaningfully probe Cammack's advice and make informed but independent decisions. See In re Unisys, 74 F.3d at 434-35; Bussian, 223 F.3d 286. Certainly, a fiduciary is within its rights-and likely well-advised-to seek advice from experts. Hightshue v. AIG Life Ins. Co., 135 F.3d 1144, 1148 (7th Cir. 1998 (“Seeking independent expert advice is evidence of a thorough investigation . . . .”). However, this comes with the proviso that the fiduciary “investigate[s] the expert's qualifications . . . and determine[s] that reliance on the expert's advice is reasonably justified under the circumstances.” Id., 135 F.3d at 1148. While the fiduciary need not “duplicate the expert's analysis, ” it must “review that analysis to determine the extent to which any emerging recommendation can be relied upon.” Bussian, 223 F.3d at 301. This can take various forms, such as “an honest, objective effort to read the valuation, understand it, and question the methods and assumptions that do not make sense.” Howard v. Shay, 100 F.3d 1484, 1490 (9th Cir. 1996).

         III. THE PLANS

         NYU established both the Faculty and Medical Plans in 1952. (PX940; DX386.) NYU is the designated “Sponsor” of both. (Tr. at 369:10.) They are defined-contribution, participant-directed 403(b) plans available to employees.

         A. The Faculty Plan

         In 2010, the Faculty Plan had 12, 868 participants and $1.79 billion in assets; by the end of 2016, the number of participants had grown to 18, 551 and assets had increased to $2.62 billion. (DX46 at 2, 18; DX3 at 2, 19.) Each participant has the independent ability to decide how his/her money should be invested. (PX940 at 14.)

         The Plan provides for 103 investment options. During the Class Period, the Faculty Plan offered investment options comprised of funds managed by TIAA (twenty-five options) and Vanguard (seventy-eight options). (See, e.g., PX497; PX718; DX87.) These options included fixed and variable annuities, as well as mutual funds. (Id.) The Faculty Plan offers participants both actively- and passively-managed index funds. (Active management typically carries higher fees.)

         B. The Medical Plan

         The Medical Plan is available to employees of the NYU School of Medicine. (Meagher Decl. ¶ 8; DX386 at 11.) In 2010, the Medical Plan had 9, 153 participants and $1.29 billion in assets; by the end of 2016, it had actually shrunk in size to 8, 560 participants but its assets increased to $2.02 billion. (DX27 at 2, 18; DX4 at 2, 19.) Like the Faculty Plan, each participant may choose among investment options. (DX386 at 18.) And like the Faculty Plan, the Medical Plan offers diverse investment options (of which there are eighty) including funds managed by TIAA (nine options) and Vanguard (seventy-one options); among the options are fixed and variable annuities as well as actively- and passively-managed index funds. (PX688; DX149.)

         C. An Overview of Recordkeeping Services

         Retirement accounts require management. As part of this, information regarding account balance and investment performance must be calculated and provided to participants. Necessary services also include preparing enrollment kits and delivering information such as fund notices, prospectuses, and financial statements; additional and optional services might also include providing investment and savings advice. (Halley Decl. ¶ 30; DX526 at 11-13; DX532 at 13-16.) “Recordkeeper” is the shorthand term for a vendor who provides recordkeeping services, and payment for such services are designated as “recordkeeping” or “administrative” fees.

         During the Class Period, the Plans' recordkeeping services were provided by TIAA[28] and Vanguard; Prudential also serviced only the Medical Plan until that Plan's consolidation to a single recordkeeper in 2013 (at which time it was eliminated). (See, e.g., Rezler Decl. ¶¶ 20-31.) In 2013, TIAA became the sole service provider to the Medical Plan. (Meagher Decl. ¶ 45; Petti Decl. ¶ 30; see also DX532; DX533.) Until May 2018, both Vanguard and TIAA provided services to the Faculty Plan: Vanguard provided recordkeeping services for the Vanguard investment options, and TIAA provided recordkeeping services for the TIAA investment options. In May 2018, the Faculty Plan eliminated Vanguard as a recordkeeper and consolidated to TIAA as the single vendor. (Rezler Decl. ¶ 56; DX520 at 5.)

         Like a number of large 403(b) plans, the NYU Plans pay recordkeeping fees by way of “revenue sharing.” In a revenue sharing arrangement, a portion of investment earnings are used to pay the fund's expenses. Participants do not “write checks” for such fees; rather, fees are deducted automatically. (Halley Decl. ¶ 24; Rezler Decl. ¶¶ 23-24; Wagner Decl. at 27-28.) See also Tussey v. ABB, Inc., 746 F.3d 327, 331 (8th Cir. 2014) (“Revenue sharing is “a common method of compensation whereby the mutual funds on a defined contribution plan pay a portion of investor fees to a third party.”).

         D. The Role of Annuities in the Plans

         403(b) plans may be set up to pay out a stream of income at retirement. In order to fund this future income stream, participants may elect to contribute to an annuity. Most Plan participants have elected to do so, and the amount of assets invested in annuities constitutes a sizable majority (three quarters) of the Plans' assets under management. Annuities are established through contracts (referred to as “annuity contracts”) between participants and the investment entity (for instance, TIAA). Annuity contracts may be between individuals and the investment entity or on a group basis; they may also provide for “fixed” or “variable” payouts.

         Here, the individual annuities are contracts issued in a Plan participant's name; the annuities guarantee periodic payments at retirement, determined on the basis of premium payments and credited interest or investment earnings during a participant's working years. (Chittenden Decl. ¶¶ 23-25; Wagner Decl. at 6.) Unlike mutual funds, a fixed annuity is considered to be an insurance product. An institution offering annuities (such as TIAA) has to maintain reserves to fund its future obligations.

         E. Background on the Committee[29]

         In the fall of 2007, NYU determined that a Retirement Plan Committee (the “Committee”) should be formed to provide “consistency and clarity in plan governance.” (Meagher Decl. ¶ 10; Dorph Decl. ¶ 4; PX462.) The Committee was established effective June 1, 2008. (Meagher Decl. ¶ 12; Dorph Decl. ¶ 5; PX533 at 2-5.)[30]

         The Committee has nine members who hold employment positions with NYU: the NYU Chief Investment Officer, the NYU Senior Vice President of Finance, the NYULMC Senior Vice President of Finance, the NYU Langone Medical Center (“NYULMC”) Controller, the NYU Vice President of Human Resources, the NYULMC Senior Vice President of Human Resources, the NYU Director of Benefits, the NYULMC Director of Benefits, and the NYU Provost or his/her designee.[31] (PX533 at 3.) In addition, the NYU Director of Benefits and NYULMC Senior Vice President of Human Resources were designated as co-chairs, and the Committee was allowed to appoint a secretary. (Id.)

         In February 2009, the Committee decided to engage Cammack as an investment advisor to help with management and monitoring of the financial aspects of plan management, including evaluating, selecting, and managing the Plans' recordkeepers as well as advising them on the selection and monitoring of plan investments. (DX554 at 1-2; see also Meagher Decl. ¶¶ 16-17, Rezler Decl. ¶¶ 6-7, 9.)[32]

         F. Quarterly Meetings

         During the Class Period, Cammack provided the Committee with quarterly updates on various financial aspects of the Plans. (See, e.g., PX34, PX36, PX43, PX44, PX530, PX1073, PX1093, PX1107, PX1294, PX1314, PX1390, PX1676.) Its reports were typically distributed to all Committee members one week before a meeting. The evidence at trial supported receipt and review of these reports by Committee members. (Halley Decl. ¶ 10; Meagher Decl. ¶ 20; Rezler Decl. ¶ 12; see also DX456-DX521 (the “Reports”).) At the meetings, and prior to making final decisions, Committee members asked questions about the information Cammack provided and its recommendations. (Tr. at 372:21-373:17, 424:8-19, 425:1-18, 1152:20-1153:20.) The evidence supports the Committee having made decisions based on adequate investigation and independent decisionmaking.

         Cammack's quarterly reports (referred to as “due diligence reports”), reviewed, inter alia, the performance of investment options. Its analyses included recommendations as to when the performance of a fund is sufficiently concerning that it has become a candidate for placement on a list established for additional scrutiny and monitoring (the “Watch List”). (Rezler Decl. ¶ 10.) Cammack's analyses included comparisons of funds' performance against peer groups as well as benchmark indices; the analyses also set forth each fund's risk-adjusted return, fees in comparison to peer funds, portfolio manager tenure, and Morningstar[33] ratings. (Rezler Decl. ¶¶ 11, 15.) The reports additionally included: reminders as to members' fiduciary duties, including their duty to ensure the “plan is competitive, meets the needs of participants and complies with ever-changing regulatory requirements”; asset allocation, including the amount allocated to TIAA traditional accounts, the TIAA Real Estate Account, and the CREF Stock Account; expenses; a financial market overview; an overview of investment options; industry trends; and regulatory updates. (See, e.g., the Reports (DX456-DX521).)

         During the Class Period, the Committee's quarterly meetings tracked many of the topics in the Cammack reports included discussions on topics that included review of investment options and performance, recordkeeping and other fees, overviews of fiduciary responsibility, (see, e.g., PX478; PX1303); streamlining the fund lineup, (see, e.g., PX480); converting to lower-cost share classes, (see, e.g., PX368; PX1331); amendments to the Committee charter, (see, e.g., PX380); and reviews of the differences between certain annuity contracts and more recently available annuity offerings, (see, e.g., PX662; PX959).

         In 2011, and annually thereafter, the Committee approved an Investment Policy Statement (“IPS”) that it used in connection with decisionmaking with respect to fund options. (Tr. at 1005:8-17; Meagher Decl. ¶ 69.) The IPS sets forth criteria for evaluating funds, how often funds are to be reviewed, and Cammack's responsibilities. (Rezler Decl. ¶ 14; Surh Decl. ¶¶ 15-16; Meagher Decl. ¶ 69; Halley Decl. ¶ 16.)[34]

         G. Trial Testimony Regarding Committee Meetings and Processes

         Five current and former Committee members testified at trial: Margaret Meagher, Nancy Sanchez, Patricia Halley, Tina Surh, and Martin Dorph. Mark Petti, who attended many meetings but was not a voting member, also testified. In addition, Linda Woodruff (a Committee member) and Susanna Hollnsteiner (not a Committee member) testified by deposition designation. (ECF No. 283-1.)

         Since the Committee's inception, Meagher has been one of its two co-chairs.[35]The second co-chairs were, at various times, Linda Woodruff, Patricia Halley, and others. Meagher's testimony was concerning.[36] She made it clear that she viewed her role as primarily concerned with scheduling, paper movement, and logistics; she displayed a surprising lack of in-depth knowledge concerning the financial aspects of managing a multi-billion-dollar pension portfolio and a lack of true appreciation for the significance of her role as a fiduciary. In a number of instances, she appeared to believe it was sufficient for her to have relied rather blindly on Cammack's expertise. As a matter of law, blind reliance is inappropriate. See In re Unisys, 74 F.3d 420; Bussian, 223 F.3d 286. For instance, she testified that it was entirely appropriate for her, as well as the other Committee members, to rely upon Cammack to determine the reasonableness of fees and that she did not do anything to test the reliability of their information. (Tr. at 126:13-128:8.) She bluntly testified that “[i]t's not my job to determine whether the fees are appropriate” for the Plans. (Id. at 126:3-9.)

         Meagher's supervisor, Sanchez, [37] also a Committee member, was similarly unfamiliar with basic concepts relating to the Plans, such as who fulfilled the role of administrator for the Faculty Plan. (Id. at 368:8-374:11.) When asked about her inability to remember Plan details, Sanchez responded that she has a “big job” (referring to her human resources role, not her Committee membership) and that her role on the Committee is one of many responsibilities she has. (Id. at 386:5-387:24.) This suggested that Sanchez does not view herself as having adequate time to serve effectively on the Committee.

         Sanchez further testified that she did not “know enough about variable annuities to be able to comment on whether they should be in these plans, ” and she could not recall whether there were “specific underperformance metrics or thresholds that have to be triggered for a fund to be put on the watch list.”[38] (Id. at 368:8-374:7.) When asked who the plan administrator was, she responded, “I don't review the plan documents. That's what I have staff for.” (Id. at 383:1-6.) Specifically, she noted that Meagher is the “one that reviews the plan documents for [her].” (Id. at 384:19-385:1.) However, as noted, Meagher-Sanchez's direct report-also failed to demonstrate a firm grasp on these documents. (Meagher and Sanchez, of course, each have a vote in Committee decisions.)

         This under-preparedness was not limited to just these two Committee members. Linda Woodruff, who was Meagher's co-chair during 2010-2012, testified that did not know whether NYU was a large plan relative to others in the United States, (Woodruff Dep. Tr. at 81:11-19[39]), and she could not recall the TIAA Real Estate Account at all, (id. at 274:2-16)-even though it was discussed at multiple meetings at which she was in attendance and was on the Watch List during her tenure, (see, e.g., PX375, DX569). Martin Dorph, a Committee member until July 2017, testified that he did not even know whether he was, at the time of trial (in April 2018), still a member of the Committee-and thus whether he bore a fiduciary responsibility to thousands of NYU participants. (Tr. 1304:3-9, 1311:3-6, 1312:8-15, 1338:11-1339:21.)[40] After the Court questioned how he could be unaware of his membership status, he endeavored to learn; the next day at trial he reported that he was in fact no longer a Committee member. (Tr. at 1338:11-1339:21.)[41]

         Several Committee members stated that they did not independently seek to verify the quality of Cammack's advice; rather, they simply relied on it. (See, e.g., Tr. at 1014:2-10; Woodruff Dep. Tr. at 90:10-91:12, 180:6-13.)

         In contrast, Tina Surh, who served as NYU's Chief Investment Officer (“CIO”)[42] and a Committee member from 2010-2014, “questioned [Cammack's] recommendations all the time.” (Tr. at 365:16-25; Surh Decl. ¶¶ 3-4.) Surh appeared to be very knowledgeable in the area of investing generally. She attended a majority of Committee meetings held between 2010-2014. Surh testified that she remembers “speaking up a lot beyond what's contained in the minutes . . . many more times than two times over the course of [her] tenure . . . .” (Tr. at 1133:12-22.) As the CIO, Surh saw her role as providing “specialized knowledge relating to investing” to the Committee. (Id. at 1155:11-1156:3.) She testified that she “questioned [Cammack] and discussed . . . the basis for their views” on the Plans' investment options. (Id. at 1154:17-23.) Outside Committee meetings, Surh read plan material prospectuses and met with portfolio managers at TIAA as well as TIAA's CEO, Roger Ferguson, who would update her on TIAA's progress and increasing efficiency. (Id. at 1153:7-22.) She also met with Cammack team members to discuss general market trends and investment options as well as specifics around NYU's IPS. (Id. at 1154:1-16.)

         While the Court finds the level of involvement and seriousness with which several Committee members treated their fiduciary duty troubling, it does not find that this rose to a level of failure to fulfill fiduciary obligations. Between Cammack's advice and the guidance of the more well-equipped Committee members (such as Surh), the Court is persuaded that the Committee performed its role adequately.[43] As discussed below, the evidence does not support a failure or loss with regard to recordkeeping fees, or with regard to the two Plans investment options at issue here.

         IV. RECORDKEEPING FEES

         Plaintiffs' first claim is that NYU breached its duty of prudence with regard to recordkeeping fees. According to plaintiffs, the breach arose from the following actions or inactions:

(1) A failure to conduct a competitive RFP process that could have driven fees down;
(2) A failure to engage in a timely and reasoned decisionmaking process to consolidate the two recordkeepers each Plan had into a single recordkeeper for each Plan; and
(3) Use of uncapped revenue-sharing to pay recordkeeping fees led to improperly high payments.

         According to plaintiffs these actions or inactions resulted in an overpayment by (or loss to) the Plans in the amount of $25, 818, 880 for the Faculty Plan and $17, 074, 702 for the Medical Plan. As discussed below, the Court finds that plaintiffs have failed to prove that the Committee acted imprudently with regard to recordkeeping fees. The evidence supports that during the Class Period, the Committee prudently managed its recordkeepers: it ran prudent RFP processes, was able to obtain lower fees for the Faculty Plan when consolidation was impractical (as discussed further below), and it consolidated recordkeepers for the Medical Plan (and, in 2018, the Faculty Plan). In addition, plaintiffs have not proven that the allegedly imprudent actions/inactions resulted in losses.

         A. Recordkeeper Consolidation

         As of 2009, each Plan had multiple recordkeepers: the Faculty Plan had TIAA and Vanguard, and the Medical Plan had those two vendors along with Prudential. (See Tr. at 312:11-25, 1223:22-24.) Early on, the Committee began discussing whether to consolidate recordkeepers, so that each Plan would have only one. Consolidation may lead to lower recordkeeping fees. However, recordkeepers may offer a variety of collateral services to participants which also have value. Thus, any examination of fees needs to account for total value-that is, both recordkeeping and collateral services. Finally, when reviewing a recordkeeping vendor's RFP response, a fiduciary needs to examine both fees, the services offered, and total value. The Committee performed this holistic review appropriately.

         Over a period of several years, the Committee issued several RFPs regarding recordkeeping services. Plaintiffs have argued that the RFP process was generally and specifically infirm and inadequate. The Court finds otherwise. In connection with the RFPs the Committee issued, a persistent criticism was that the RFPs only sought bids for a portion of the asset base. According to plaintiffs, this prevented potential vendors from seeing and contemplating the full opportunity, thereby driving further price concessions. However, as discussed below, defendant argues that consolidation of recordkeepers was simply not possible for assets held in TIAA annuities, which constituted three quarters of the Plans' assets.[44]

         The evidence at trial supports defendant's contention that technical and other requirements prevented immediate consolidation of the Faculty Plan. Under the circumstances, the Committee ran an appropriate RFP process both in terms of number and with regard to the asset base up for bid.

         Embedded in plaintiffs' overall “failure to consolidate to a single recordkeeper” argument are the assumptions that (1) a single vendor is always in the best interests of plan participants, and (2) consolidation necessarily results in lower overall fees. The record is not supportive. In this case alone, administrative fees for the Faculty Plan (which had two recordkeepers throughout the Class Period) were actually lower than for the Medical Plan (which had one recordkeeper as of 2013). (Wagner Decl. at 29-30.) In any case, even assuming that a single recordkeeper might have resulted in lower fees, the Court is not persuaded that the Committee was imprudent for failing to consolidate the Plans sooner.[45]

         A principal point plaintiffs made at trial was that on a number of occasions spanning several years, Cammack advised the Committee that consolidating recordkeepers would result in savings. (See, e.g., PX972 at 8; PX480 at 1; PX463 at 2-3; PX976 at 1; PX235 at 4; PX504 at 4; PX368 at 3; PX9 at 7; PX971.) For example, in its report dated June 14, 2010, Cammack listed certain advantages of consolidation to a single vendor arrangement. (PX1248 at 10-13.) These included, inter alia: increased purchasing power resulting in lower cost investments; ease in the administrative burden; simplification of compliance costs; enhanced control of NYU over assets; and more efficient fiduciary monitoring. (Id. at 11.) On July 14, 2010, Cammack provided a report focused solely on vendor consolidation, which added details on TIAA-CREF pricing according to the 2009 RFP. (DX462 at 10.) A similar report was provided on September 23, 2010, (PX598), and in November 2010, (DX465). In December 2010, Cammack's report noted:

• It is extremely difficult, if not impossible, to effectively manage the existing multi-vendor arrangement while meeting the compliance requirements of the regulations cited previously.
• Multi-vendor arrangements are not cost-efficient, as vendors are forced to compete for assets contributed to the plan, and therefore cannot offer lower cost fund options or lower administrative expenses (higher fees cause participants to realize lower investment returns).
• The arrangement requires plan participants to follow an unnecessarily complicated process if they want to move account balances from one investment with one vendor to another vendor.
• Many functions, such as loan processing and new participant enrollments, cannot be fully automated online as no single vendor has all required information.
• Participant communications for newly eligible participants and educational campaigns for all active participants are extremely difficult to coordinate across multi-vendor programs.

(PX232 at 4.) The same report stated that the “disadvantages to consolidating the program to a single vendor are few, ” but included: a disruption to participants using Vanguard or Prudential, a possibility that employees would view it as a “take away, ” and considerable work for the NYU benefits team. (Id at 7.) A similar report was issued the following month. (PX246.)

         There is no evidence that in making its recommendations in favor of consolidation, Cammack considered: (1) certain technical issues pertinent to consolidation of the Faculty Plan; or (2) that over three quarters of the Faculty Plan's assets were in TIAA annuities that only TIAA had any experience recordkeeping (that is, literally no other vendor had ever recordkept TIAA annuities). Thus, the Court does not view the existence of the Cammack recommendations, and any failure to follow those recommendations, as strong evidence of imprudence. Indeed, it demonstrates Committee decisionmaking independent of Cammack.

         Recordkeeper consolidation at an institution such as NYU is a complex and time-consuming process. (Meagher Decl. ¶ 42; Dorph Decl. ¶ 18; Petti Decl. ¶¶ 25-28.) It requires significant planning and a long, detailed process involving coordination of vendors and the plan sponsor, as well as a detailed rollout plan.[46](Meagher Decl. ¶ 42; Dorph Decl. ¶ 18; Petti Decl. ¶¶ 25-28.) This is in addition to any technical systems reconfiguration that has to be made and tested for new or changing file interfaces. (Meagher Decl. ¶ 42; Dorph Decl. ¶ 18; Petti Decl. ¶¶ 25-28.) A move to consolidate retirement plan vendors requires a substantial amount of organizational resources in technology, time, personnel, and money. (Meagher Decl. ¶ 42; Dorph Decl. ¶ 18; Petti Decl. ¶¶ 25-28.)

         The evidence at trial persuasively demonstrated that, unlike the Medical Plan, the Faculty Plan was subject to administrative and technological issues that made a switch to a single recordkeeper practically quite difficult. In and around 2008-2010, NYU Washington Square (the employees of which utilize the Faculty Plan) was in the midst of a number of human resources and technological system switchovers; NYU Langone (the employees of which utilize the Medical Plan) was not. Credible testimony at trial supported IT concerns as a significant factor the Committee considered in determining whether or not to go to a single record keeper.[47] As Petti testified:

in order to implement a single-record keeper process, there needed to be a facility that was actually implemented and so the underlying resources, the underlying technology, the underlying support by the university in order to be able to do that. And so in order to successfully implement a single-record keeper process, the university has to provide the resources and make them available in order to make it a successful implementation.

(Tr. at 442:6-13.)

         In 2008, Washington Square (for the Faculty Plan) was beginning the complex process of updating multiple computer systems and programs at the University, including updating and modernizing all of NYU's systems for payroll, finance, student records, and human resources. (Dorph Decl. ¶ 15; Tr. at 535:16-21.) A series of major system implementation projects followed. (Dorph Decl. ¶ 15.) The new human resources (“HR”) operating system “went live in May 2014, ” but implementation was not complete until 2015. (Tr. at 1364:2-8.) The result-which took several years-was one system for all of the university's HR needs. (Id. at 535:16-21.) It is clear that the technological issues at Washington Square were a very real concern on which NYU spent significant time and money.[48] (These problems did not exist at Langone (i.e., for the Medical Plan), which had already converted to a new HR system. (Id. at 1365:8-17.))

         The primary trial witness on the technical issues impeding recordkeeper consolidation was Dorph, NYU's then-CFO. Dorph's testimony on this issue was detailed, thorough, consistent, and credible. He testified that as of his arrival at NYU in 2007, NYU's finance system, human resources system, and student information systems were “considered to be legacy systems, meaning systems of previous generations of software.” (Id. at 1358:3-5.) He was “quickly confronted with the question of . . . if and how, and how best to implement changes to the systems.” (Id. at 1358:6-10.) His team thus conducted a “readiness assessment” and hired an IT consulting firm to plan out the system changes. Dorph testified:

What they basically told us in 2008 or whenever their report was issued is that we weren't ready. There were a lot of steps we needed yet to take to be ready to implement changes to our systems. And it's really important to understand when we talk about changes to our system, we are not talking about unplugging one plug and putting in another plug. If you think about the HR system, there's records of literally tens of thousands of people in the system, there are hundreds of users of the system, there's processes that flow through not only the HR process itself but then connect to things like the finance system, to our budget systems and so forth.
So when we talk about readiness, it's not a question of just replacing one app with another app the way you do on your phone, it's a question of do we have people in place who actually can take us through the process of figuring out what functionality we need, what software vendors can meet the functionality, what changes we need to make to the software to provide the functionality that we need to have to maintain our services to our employees. We asked that question with regard to all of the systems, including our HR system, and we were told we didn't have the people and sophistication in place. We proceeded almost immediately to do that. One of the recommendations was to create something called a program services office who could help us navigate-think about it as a three-part triangle. There are the IT folks who plug things in and make them run, there are the business process owners, the people like the HR department or the accounting department and so forth who actually in some respects own the systems, and then the users who are out there in the university using the systems every day in schools or who might be finance officers in the schools and so forth.

(Id. at 1358:16-1359:22.) Thus, the NYU team sat down with stakeholders to determine which systems would be updated and in what order. It brought in a consultant to analyze “the finance system, the HR system, the student information system. We also talked about the need for a data warehouse so we could get up-to-date reports out of all of these systems.” (Tr. at 1360:8-11.) Dorph further testified:

Just to make sure you understand the magnitude of what we're talking about, the three systems at the end of the day that we replaced we probably spent between [$]80 and $100 million replacing these systems, I assure you software was only a small component of that. The need for all of this process, design, figuring out which software could actually do the best job, bringing on the consultants to help us figure out how to connect systems to each other-just by way of example, when we actually put in the HR system . . . a couple of years ago, we had to create what we call interfaces to other systems. The HR system required 136 interfaces to other systems. I remember that number because we quoted it often because we were often explaining to people the complexity of our IT environment. So the software is a small piece of the overall system requirements.
But at the core of this is the need to make sure that the functionality continues and is not interrupted. To go back to HR system, what was then the [Human Resources Information System] and the payroll systems, as I said, were legacy systems. They were old. They were repeatedly patched. They were systems that were connecting to all these other systems. And when you . . . don't change that and then you start putting more functionality on top of it, you take the risk that things will go wrong.

(Id. at 1360:20-1361:18.) A change in recordkeepers would entail significant coordination with and changes to the new systems being implemented; NYU believed any recordkeeper switch could not be completed without risk of significant errors or additional changes prior to completion of this global update of NYU's systems and technology. (Dorph Decl. ¶ 15; Meagher Decl. ¶¶ 22, 38.)

         In sum, the Court finds that these technical issues meant that consolidation of the Faculty Plan prior to completion of the systems update was likely to result in substantial participant disruption. Thus, until the other system updates were completed, it would not have been prudent for the Committee to consolidate recordkeepers for the Faculty Plan.[49] Certainly a decision not to consolidate at this time was not imprudent.[50]

         1. RFP Frequency

         Plaintiffs assert that more frequent RFP processes for both Plans would have exerted competitive pressure on recordkeeping vendors, resulting in either a reduction of fees by an existing vendor or a better deal altogether.[51] According to plaintiffs, the Committee was imprudent in issuing infrequent RFPs. The Court finds otherwise. The record at trial persuasively demonstrated that NYU had particular needs, a particular technological environment, and infrastructure that made the frequency of its RFP process during the Class Period adequate. In addition, plaintiffs ignore that over the course of several years, NYU's recordkeeping fees consistently decreased as NYU obtained repeated rate reductions.

         The Committee issued its first RFP in September 2009; this eventually resulted in the Medical Plan's consolidation of recordkeepers in March 2013. It did not result in consolidation for the Faculty Plan. The Committee did not issue another RFP for the Faculty Plan until 2016.[52]

         Vendors submitted detailed responses to the 2009 RFP. TIAA, which was already a recordkeeper, itself submitted a substantial and detailed response. It provided extensive answers to all questions and provided an expense projection. (Chittenden Decl. ¶ 21; Rezler Decl. ¶ 21; DX21.)[53] Vanguard and Fidelity likewise provided detailed information in their response to the RFP, including extensive information detailing fees, fund performance, and fund expenses.[54] (Rezler Decl. ¶ 22; PX65; DX395.) Aside from price alone, the Committee was “sensitive to the variation in service capability that existed among different vendors.” (Tr. at 1136:24-1137:2.)[55]

         At meetings in April and September of 2010 and January and March of 2011, the Committee worked to finalize its decision. It reviewed the advantages of consolidation with a single recordkeeper, highlighted the reduction of fees that would result from consolidating with TIAA, and discussed streamlining the fund lineup. (See, e.g., PX480, PX463, PX460.) They also noted that Langone (for the Medical Plan) and the University (for the Faculty Plan) would need approval from senior management before making a move (or “map”) to a single recordkeeper, (PX463 at 3), and discussed moving assets between vendors or types of products (a process generally referred to as “mapping”) as well as their understanding that “NYU has the capability to move the assets at Vanguard to TIAA” but that “the existing contract [i.e., the annuity contracts] with TIAA does not allow NYU to move [TIAA] assets to another vendor.”[56] (PX460 at 2.) (This “mapping” issue is discussed further below.)

         On April 1, 2011, the Committee formally approved consolidation to TIAA as a single recordkeeper for the Medical Plan. (PX481 at 1.) In 2013, the “Committee determined that due to the complexities of a consolidation and the perceived expectations of faculty and staff for the NYU retirement program, a move to vendor consolidation [would] not be undertaken [for the Faculty Plan] at [that] time.” (DX576 at 3.)

         In 2016, the Committee issued a second RFP for the Faculty Plan.[57] (DX42.) Four responses were received and Cammack crafted a detailed presentation comparing them. (DX404 at 2, 8-32.) In response to this second RFP, TIAA offered further reduced rates. (PX1366 at 1.) A key issue on which the Committee focused was disruption to the Faculty Plan's participants. (Petti Decl. ¶¶ 32, 36; Dorph Decl. ¶¶ 16-18.) It also considered its understanding that, because a significant amount of the Faculty Plan's assets were held in annuity contracts, there were questions as to whether any vendor other than TIAA could or had the appropriate expertise to recordkeep them. In this regard, the Committee either was unwilling or believed it could not move participants' investments in TIAA traditional annuities, the CREF Stock Account, or the TIAA Real Estate Account to other investments. (Halley Decl. ¶ 39.) In addition, the Committee also knew that no other vendor had ever recordkept TIAA annuities on their own platforms. Thus, as a practical matter, the Committee viewed TIAA as an entrenched recordkeeper for its own annuity products-and that the concept of ...


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