A New York federal judge has allowed a suit alleging that the Teachers Insurance Annuity Association of America (TIAA) violated federal benefits law to proceed to discovery. Retirees claim that TIAA coerced them into transferring their assets into higher-fee managed accounts.

 TIAA Retirement Suit : Motion to Dismiss Denied

In an opinion and order docketed Friday, U.S. District Judge Katherine Polk Failla denied a motion to dismiss from TIAA and TIAA-CREF Individual & Institutional Services LLC. The retirees' initial suit, which was dismissed in September 2022, was allowed to be refiled as an amended complaint in August.

Allegations of Fiduciary Breach

The retirees, from various university plans that retained TIAA as a service provider, first sued in October 2021. They alleged that TIAA's cross-selling activity targeted participants in ERISA-regulated accounts for more expensive managed account services, violating ERISA's fiduciary duties. Judge Failla noted that while the initial complaint alleged a breach of fiduciary duty due to cross-selling, the second amended complaint targeted the plan sponsors for failing to address TIAA's activities.

 TIAA Retirement Suit : Participation in Breaches

The retirees also claimed TIAA was liable under ERISA for knowingly participating in these breaches. Judge Failla found that these allegations cleared the bar for dismissal. "Plaintiffs have alleged in great detail the systematic efforts on TIAA's part to drive members from their ERISA plans and into TIAA-sponsored offerings, with little upside to those participants," she said. The proposed class adequately alleged that plan sponsors breached their fiduciary duty by failing to monitor TIAA's revenues.

TIAA's Defenses Rejected

Judge Failla rejected TIAA's arguments against the retirees' allegations. She was unmoved by TIAA's reliance on the 2010 Second Circuit decision in Bell v. Pfizer, which found fiduciary duties of a plan sponsor did not apply to nonplan conduct. The judge noted that the TIAA retirees' breach theory directly implicated plan sponsors for failing to address cross-selling activity.

 TIAA Retirement Suit : ERISA Disclosure Requirements

Judge Failla added that although ERISA does not have specific disclosure requirements regarding service providers' nonplan offerings, such disclosures are informed by the law of trusts, which shapes ERISA's duty of prudence. She also compared the retirees' theory of liability to allegations in a class action retirement suit against Yale University, which Yale won in June 2023.

Evidence of Fiduciary Breach

Judge Failla said the level of detail TIAA sought was not required before discovery, as long as there was enough circumstantial evidence to support the participants' claims. The proposed class identified a "significant increase in revenues" for TIAA relative to projected earnings from its plan contracts as circumstantial evidence of a fiduciary breach. Judge Failla pointed out that the increase in revenue, coupled with TIAA's cross-selling providing little benefit to the plans, supported an inference at the pleading stage that the fees were excessive.

 TIAA Retirement Suit : Next Steps

Judge Failla ordered TIAA to respond to the second amended complaint by June 21. Counsel for both parties and a TIAA spokesperson did not immediately return requests for comment on Monday.

Representation

The proposed class is represented by Jerome J. Schlichter, Joel D. Rohlf, Sean E. Soyars, and Andrew D. Schlichter of Schlichter Bogard LLP. TIAA is represented by Alan Schoenfeld, Brad E. Konstandt, Lori A. Martin, Gideon A. Hanft, and Ryan Chabot of WilmerHale.