Emory University Excessive 403(b) Plan Fee Suit Moves Forward

By Rebecca Moore | May 12, 2017
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The plaintiffs allege that two of the annuity accounts included in the plans charge unnecessary fees. They argue that the distribution expenses and mortality and expense risk charges are unnecessary for the plans. Additionally, they state that the mortality and expense risk charges assessed are not relevant to all participants, but benefit only those participants that elect to annuitize their holdings upon retirement. Finally, the plaintiffs allege that all five of the expenses aid the fund companies but not the plans’ participants.                

Pannell concluded that the fees charged by funds in a plan should benefit the participants, and the fund options chosen for a plan should not favor the fund provider or the fiduciary over the participants. “Thus, the plaintiffs’ allegations that the plans’ funds charged fees that were excessive and/or provided a benefit to TIAA but not to the benefit of the participants are sufficient to state a claim for relief,” he wrote.

Pannell also ruled that the plaintiffs have properly alleged that the defendants acted imprudently by retaining underperforming funds. “Therefore, the plaintiffs’ claim that the defendants acted imprudently by retaining the CREF Stock Account and TIAA Real Estate Account will not be dismissed.”

The plaintiffs also allege that the defendants should have used a stable value fund instead of the TIAA Traditional Annuity. The defendants argue that stable value funds have underperformed the TIAA Traditional Annuity over the last one, three, five, and ten years. Pannell said the defendants are improperly arguing questions of fact at this stage. Taking the plaintiffs’ allegations as true, a stable fund could have been an alternative option to the TIAA Traditional Annuity. Therefore, Pannell did not dismiss the plaintiffs’ claim related to an alternative investment option to the TIAA Traditional Annuity.

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