Plan participants who say TIAA pushed them from low-fee plans into pricey alternatives are moving forward with claims the wealth management and investing firm breached its fiduciary duties to its participants, under the Employee Retirement Income Security Act, ruled a U.S. District Court judge in New York last week.
Teachers Insurance & Annuity Association of America may also be subject to liability under ERISA for knowingly participating in the alleged misdeed of its retirement plan sponsor clients. Plan participants John Carfora, Sandra Putnam and Joan Gonzalez, who were part of separate university defined contribution plans serviced by TIAA, filed the initial complaint against the firm in 2021, alleging TIAA cross-sold the firm's adviser-managed account service, Portfolio Advisor, which comes at a higher cost than remaining in the plan.
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The lawsuit was initially dismissed in 2022, after which plaintiffs' attorneys filed an amended complaint. However, last week, the judge ruled in favor of the plaintiffs, noting that the suit shows "in great detail the systematic efforts on TIAA's part to drive members from their ERISA plans and into TIAA-sponsored offerings," said U.S. District Court Judge Katherine Polk Failla.
Plaintiffs alleged that through its campaign, TIAA placed participants into individual model portfolios that often included TIAA-affiliated funds, which added fees that they would typically not pay by keeping assets in the employer-sponsored plan.
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The judge also found that plaintiffs sufficiently alleged TIAA advisors cold-called plan participants under the guise of offering free financial planning services, but with the intent to move participants to the managed account offerings.
Carfora alleged that "he was subject to emphatic cross-selling by a TIAA representative" and failed to inform him that "the fees and expenses of moving assets to Portfolio Advisor were higher than remaining in his employer-sponsored plan," wrote Polk Failla.
The judge ordered TIAA to provide a response by June 21.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
