If you invest in a 403 (b) retirement plan and don't know how much you pay in fees for your plan--that's also known as tax-sheltered (or tax-deferred) annuities--you're not alone. Many people don't.
If you're asking why you should care about the fee, the answer is simple. The fee you're charged impacts the payout over the lifetime of an employee's investment in the plan, which could mean the difference in tens of thousands of dollars.
According to Attorney Jerry Schlichter, founding and managing Partner at Schlichter Bogard and Denton of St. Louis Missouri , employers are required by law to disclose to employees how much they're paying in fees and those fees should be deemed "reasonable". Schlichter says if employees don't know what their fees are, they should ask.
Schlichter, who some refer to as "a pioneer retirement plan litigator" recently initiated a lawsuit against three prominent universities...MIT, NYU, and Yale. .. accusing them of charging employees excessive fees on their retirement savings. He says the lawsuit he's brought against the universities is similar to lawsuits he's successfully pursued against 401(k) plans of private companies, in that employee money is at risk. 403 (b) plans are designed for employees of public schools, colleges and universities, churches and other religious organizations. Employees of certain other tax-exempt, non-profit organizations such as charities or certain hospitals can also participate in a 403(b) retirement plan.
Boston-based Fidelity, which declined comment on the case, is a service provider to MIT and not named in the lawsuit. Schlichter says MIT has a fiduciary responsibility to make sure fees are reasonable and prudent.
Exactly what is a reasonable fee? Schlichter says it depends on the investment and essentially it's the marketplace. He says when fees exceed the marketplace; it's deemed unreasonable. He says retirement plans such as MIT with multi-billion dollars in holding assets should not be paying the same rates as individuals who invest $500. Their fees should be lower.
So what is a reasonable fee? In crunching the numbers, Schlichter says there's compelling statistic about the impact of excessive fees over a 35-year investment. For example, a one percent difference in retirement plan fees over a 35-year career, 1.5 percent rather than .05 percent, could mean 28 percent less in the retirement assets available to an employee at the end of a career. So an account with $25,000 invested and no further contributions for 35-years would rise to $163,000 instead of $220,000 at an annual rate of 7 percent according to the US Labor Department and the New York Times.
Yale Responds
After publication, Yale's Vice President of Human Resources and Administration Michael Peel reached out to WGBH News with this statement:
On August 9, a lawsuit was filed against the University concerning the administration of the Yale University Retirement Account Plan (YURAP). This lawsuit is part of a wave of similar lawsuits filed by the same Missouri-based law firm challenging university retirement plans. Complaints have also been filed against Duke University, the Massachusetts Institute of Technology, New York University, University of Pennsylvania and Vanderbilt University.
YURAP provides competitively superior retirement benefits to faculty and managerial staff. The University is committed to ensuring that the plan serves the interests of plan participants and beneficiaries by permitting participants to invest their retirement assets in a way that suits their personal financial preferences. The University has a strong Retirement Plan Fiduciary Committee and processes in place to regularly review the performance and costs of the investment options offered. We are confident that YURAP provides generous and well-designed benefits and is administered consistent with all legal requirements.
The lawsuit against Yale alleges that YURAP offers too many investment choices, that certain of the investment choices are inferior, and that the costs of plan administration could have been reduced. We believe that these allegations are without merit and, working with our legal team, we will be responding to these allegations and intend to oppose this suit vigorously.
To learn more about the retirement plan fees and the lawsuit filed by Jerry Schlichter click on the audio file above.
