The Higher Ed Workplace Blog

CUPA-HR Joins Amicus Brief in Support of Petition for Rehearing in 403(b) Retirement Case

On June 7, CUPA-HR and seven other higher education associations, led by the American Council on Education (ACE), filed an amicus brief to the Third Circuit Court of Appeals in the University of Pennsylvania’s 403(b) retirement plan case.

The case, Jennifer Sweda et al. v. The University of Pennsylvania, which deals with the issue of 403(b) retirement plans, was originally filed in district court in August 2016 along with a dozen other lawsuits that have targeted universities and individuals who work for them, alleging breaches of fiduciary duties in connection with the structure and administration of institutionally-sponsored faculty and staff retirement plans.

Those lawsuits alleged that university 403(b) plans should look just like corporate 401(k) plans — and that the universities have violated the Employee Retirement Income Security Act of 1974 (ERISA) by failing to offer plans following corporate norms. Specifically, Sweda alleged breaches of fiduciary duty and prohibited transactions.

In September 2017, a U.S. District Court judge in Philadelphia dismissed the suit against University of Pennsylvania in its entirety, determining that Sweda failed to state a claim for fiduciary breach because her factual allegations could also indicate rational conduct.

As for the prohibited transaction claims, the court held that the service agreements could not constitute prohibited transactions without an allegation that Penn had the subjective intent to benefit a party in interest. The case against the Penn was (and remains) the only one to have been dismissed in its entirety by the federal district court.

However, in October 2017, the plaintiffs appealed that ruling to the Third Circuit Court of Appeals. On April 12, 2018, ACE led a brief of the same higher ed associations, including CUPA-HR, which argued that the district court’s judgment to dismiss the case should be affirmed.

On May 2 of this year, a three-judge Third Circuit panel affirmed the dismissal of some, but not all, of the claims in the case — specifically reversing the district court’s dismissal of claims about excessive fees and improper investments.

Following that decision, on May 30, the University of Pennsylvania urged the Third Circuit U.S. Court of Appeals to undertake an en banc (full panel) review of the case. The June 7 brief submitted on behalf of the aforementioned higher education associations supports Penn’s petition for rehearing and underscores “the importance of determining the correct pleading standard in breach of fiduciary duty class actions under ERISA,” stating “If generic allegations that could be asserted against any plan fiduciary — like the allegations here — are sufficient to survive a motion to dismiss, then defendant universities will bear substantial litigation costs, qualified individuals will be deterred from agreeing to serve as fiduciaries, and plan participants will be made worse off.”