A man who sued Columbia University over the elimination of a precious metals fund from its 403(b) menu lost his fight in court this week.
Jerry Kokoshka, who represented himself in the litigation, filed a complaint in 2019 after the plan committee scrapped the Vanguard Global Capital Cycles Fund, which had formerly been the Precious Metals and Mining Fund.
Kokoshka had invested the entirety of his account balance in the fund since 2017, when “he became concerned with ‘the high leverage in equity markets,’ and wished to ‘invest his retirement savings in gold to preserve [the] purchasing power of his savings and to avoid risk associated with market crash,’” court records stated.
When the fund was removed from the plan, his assets were transferred to a Vanguard target-date fund, and he reportedly lost about $24,000 as a result of the difference in what he had invested in the prior fund and the selling price of his shares.
The participant alleged that the plan committee was negligent and breached its fiduciary duties under the Employee Retirement Income Security Act.
The judge presiding over the case disagreed, according to the Thursday order in U.S. District Court in the Southern District of New York.
Columbia’s committee acted within the scope of ERISA’s safe harbor for investment selection, the judge wrote, noting that, “if a plan allows a participant to control where his or her contributions go and offers sufficient investment options, the fiduciary may not be held liable for the participant’s own investment decisions.”
The court gave the plaintiff “special latitude” in responding to the defendants’ motion for summary judgment, given that he was representing himself in the case, according to the order.
His claim “and the damages he seeks stem not from a transfer of funds but from the committee’s decision to remove the GCC Fund from the menu of available investment options.”
The plan sponsor notified participants ahead of the fund’s removal in order to give them time to move assets into a different option, according to the order, although the plaintiff did not move his money.
Language in section 404(c) of ERISA “creates a safe harbor only with respect to decisions that the participant can make. The choice of which investments will be presented in the menu that the plan sponsor adopts is not within the participant’s power,” the order read.
There was no evidence that the plan committee breached its duty of care, and it chose to remove the investment option because it had been placed on a watch list, due to underperformance over three quarters, and had a revised investment philosophy, the judge noted. “What is more, requiring a fiduciary to include any fund desired by a participant would of course be unworkable and contrary to the duties that ERISA imposes on plan administrators.”
The sponsor of a $1.6 billion 403(b) is the latest to be sued by law firm Capozzi Adler, which since last year has pursued many cases against retirement plan fiduciaries.
The employer, Baptist Health South Florida, allegedly breached its fiduciary duty in connection with excessive record-keeping and investment management fees within the plan, according to the complaint filed Tuesday in U.S. District Court in the Southern District of Florida.
Between 2015 and 2019, the average per-participant record-keeping fee paid to Transamerica ranged from $108 to $158, through direct payments and indirect compensation, the plaintiffs in the proposed class-action case stated. A more reasonable rate would have been about $40 per participant, according to survey data from NEPC, the complaint noted.
The funds on the plan menu were also had higher fees than those used in comparably sized plans, with expense ratios as high as 343% of the Investment Company Institute median, the plaintiffs stated. Many of the funds were available in lower-cost share classes that the sponsor did not opt for, which in some cases were half the cost of those within the plan, according to the complaint.
Additionally, there were alternative options for entirely different funds that had higher net returns over time, the complaint stated.
The lawsuit levels two claims — one for breach of fiduciary duties of loyalty and prudence and one for failure to adequately monitor other fiduciaries.
Plaintiffs in the proposed class are represented by Capozzi Adler and Matthew Fornaro.
Baptist Health South Florida did not immediately respond to a request for comment.
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