Northeastern settled a lawsuit Oct. 15 for $725,000 over allegations it mismanaged the employee retirement investment plan, agreeing to compensate its employees — including professors, faculty and staff — for reportedly excessive fees.
The class action lawsuit, originally filed June 30, 2022, was brought against the Northeastern Investment Committee, which is managed by the university’s Board of Trustees, for its “imprudent and disloyal mismanagement” of retirement investment plans. The plaintiffs, which included several former professors, also alleged the committee’s lack of transparency in charging fees and investments violated the Employee Retirement Income Security Act of 1974, which requires fiduciaries to act solely in the interest of the plan’s participants and beneficiaries.
Northeastern reached a settlement to compensate the named plaintiff, Oscar Brookins, an emeritus economics professor in the College of Social Sciences and Humanities, along with the more than 8,000 participants of Northeastern’s retirement investment plan. Brookins also proposed an attorney fee award of roughly $240,000 to cover the plaintiffs’ legal costs, which was approved on top of a $5,000 service award for Brookins himself.
The suit referenced a 2021 study by an investment company in Boston that found that half of retirement plans with between 5,000 to 15,000 beneficiaries charged $40 to $55 in recordkeeping fees, and no plans of this size exceeded $70. Though Northeastern’s individual recordkeeping fee was not detailed in the complaint, the lawsuit claimed the university violated its fiduciary responsibilities by charging “above-market recordkeeping and administrative fees” for participants.
The university’s retirement investment plan is a “defined contribution plan” where enrolled employees are expected to deposit a portion of their salary into their personal investment account. The money employees receive after retirement consists of their contribution and the net gains or losses of the investments, so employees bear the risk of their investment with no guaranteed fixed amount in return.
After signing up for the plan, employees choose who will manage their plan from two custodians (the financial institutions responsible for safeguarding the assets of a retirement account): Fidelity Management Trust Company and Teachers Insurance and Annuity Association, or TIAA. From the custodian’s list of funds, employees pick one of over 60 investment options.
Enrollees in Northeastern’s retirement plan pay their required recordkeeping fee from their plan’s assets, which appointees have an option to make through direct payment or via revenue sharing. The suit alleges that Northeastern hid the true cost of fees from participants, leading to them being charged excessive or above-market rates.
The lawsuit alleged Northeastern miscommunicated the “true scope of fees” and failed to conduct the Request for Proposal process a formal outline of investment plan requirements.
Brookins and other participants of the plan, as a result, allegedly had to pay above-market administrative fees and a higher expense ratio with minimal knowledge of where their investments ended up.
In response to the lawsuit, in May 2022, Northeastern denied the allegations and asked for the suit to be dismissed. In April 2024, the United States District Court for the District of Massachusetts denied Northeastern’s motion to dismiss the lawsuit, except the complaint of using TIAA as custodians.
In settling the lawsuit, Northeastern denied all allegations but agreed to the payout to “eliminate the burden, expense, and risk of further litigation,” according to court records.
On top of the up-charged recordkeeping fee, Northeastern fiduciaries reportedly offered participants imprudent retirement investment options. Custodians give participants a list of investments from insurance companies, some of which have been brought to court by employees of other higher education institutions for red flags.
The university did not respond to a request for comment.
In 2019, Jennifer Sweda, a former librarian at the University of Pennsylvania, filed a lawsuit against the university’s fiduciaries for excessive fees and unreasonable investments. The university offered options from different investment accounts, including two TIAA options that Northeastern also offers, the TIAA Real Estate Account and the College Retirement Equities Fund Stock Account. Two years later, the University of Pennsylvania agreed to a settlement of $13 million.
In 2017, the New York Times reported that TIAA’s benevolence has come into question as multiple lawsuits accuse the firm of pushing low-value options on customers at higher fees.
“[TIAA’s subsidiary] had a year-long record of taking advantage of TIAA’s privileged access to retirement plan participants to, essentially, scare them into buying services they didn’t need,” Sweda’s suit against the University of Pennsylvania reads.
In July 2021, New York Attorney General Letitia James announced $97 million in restitution for TIAA customers, but the company has faced allegations of moving customers’ retirement investments to higher-fee accounts since November 2017.
