Faculty and staff at some of the nation's most prestigious universities are the latest to sue their employers over high fees for retirement plans.
Plaintiffs' attorneys recently filed lawsuits against Yale, the Massachusetts Institute of Technology, New York University, Johns Hopkins University, Duke University, the University of Pennsylvania, Vanderbilt University and Emory University.
The eight complaints hit upon a common claim in litigation over retirement plans: Participants are paying excessively high fees for investments, record keeping and administration services.
But there's a new twist: The suits against the colleges largely center on high fees in 403(b) plans, which are retirement plans for nonprofit organizations, not the more common 401(k) plans that companies offer.
"Nonprofits with 403(b) plans are under somewhat different laws from 401(k) plans, but the fiduciary duty to put participants' interests first and work for their sole benefit is the same," said attorney Jerry Schlichter, whose St. Louis firm Schlichter Bogard & Denton is representing the plaintiffs in all of the cases.
The complaints are new enough that some schools say they haven't been served yet. The universities are challenging the claims.
"Johns Hopkins University offers its employees a generous and carefully managed benefits program, including for retirement," Hopkins spokeswoman Tracey Reeves wrote by email.
As of the first quarter of 2016, these 403(b) plans accounted for $876 billion in assets, compared with $4.75 trillion in 401(k) plans, according to the Investment Company Institute.
The 403(b) plans offered by nonprofits, school districts and hospitals have a reputation for high costs and complexity. "Without question, the 403(b) market was the Wild West," said Alexander Assaley, managing principal of AFS 401(k) Retirement Services, a retirement plan consulting firm. "There were lots of contracts within a plan, lots of restrictive clauses and surrender charges."
High fees are rampant in 403(b) plans that use annuities, advisors say.
"The fund fees could cost more than 1 percent, and the insurance component could be over 1 percent," said Anthony Isola, a certified financial planner at Ritholtz Wealth Management in New York.
A January survey from benefits consultant Aon Hewitt, which was cited by the plaintiffs in the university lawsuits, found that 403(b) plans' mutual funds had an asset-weighted average fee of 0.97 percent while fees on variable and fixed annuities were an average of 2.25 percent and 1.15 percent, respectively.
The plans Aon studied often offer investors more than 30 investment options. This hurts employees because they can be baffled by the breadth of choices, according to Aon.
Indeed, some 403(b) plans of the universities being sued by their employees provided an array of investing options. For example, Johns Hopkins' 403(b) plan offered 440 different mutual funds and insurance products, according to the complaint.
When the time comes to roll out of the 403(b), either because of retirement or a career change, participants who are holding annuities potentially will have to pay more fees.
Dollars kept in an annuity are subject to a surrender period, which can be as long as 10 years, and the calendar restarts for any new money that you add to the contract.
If you remove any of the cash before the surrender period ends, those funds will be subject to fees.
If you are in a costly 403(b) plan, consider stashing money in a Roth IRA, especially if your employer offers a pension. You will owe income taxes on Roth IRA contributions, but distributions and contributions you take in retirement will be tax-free.
"I suggest clients use a Roth IRA over a 403(b)," said Dave Grant, a certified financial planner at Finance for Teachers. "It might cost a little more in taxes now, but tax diversification is more important in retirement."
Getting more details on your plan always helps, too.
Ask about your plan's expenses, whether you're investing in an annuity or mutual fund. If it's an annuity, learn about the surrender period and how it will affect your future rollover plans.
"Understand what your contract offers and what are the restrictions," said Assaley. "Transparency is key."