Judge Certifies Sizable Class in Lawsuit Over TIAA’s Retirement Plan Loan Program

U.S. District Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York has granted class certification in a lawsuit seeking to recover money that TIAA allegedly “unlawfully took” from retirement accounts similarly situated in the Washington University Retirement Savings Plan and across its U.S. business.

The lawsuit filed in 2017 explains that the Washington University plan offers participants the opportunity to take out a loan against a portion of their retirement accounts. Washington University contracted with two outside vendors, TIAA and Vanguard, to administer these participant loans. For loans administered by TIAA, participants are “require[d] … to borrow from defendant’s general account rather than from the participant’s own account.” Thus, participants must first “transfer 110% of the amount of the loan from the participant’s plan account … to defendant’s ‘Traditional Annuity,’” a TIAA financial product that pays a fixed rate of interest. The amount transferred to a Traditional Annuity serves as the collateral securing the loan.

The participant then repays the loan to TIAA’s general account, which also earns the interest paid on the loan. The interest rate for TIAA’s participant loans is variable. TIAA retains for itself the difference, or “spread,” between the loan interest rate paid by participants and the interest rate received by participants as investment income from the Traditional Annuity. In other words, participants do not receive the full amount of the interest they earn on their collateral, because some of it is taken by TIAA as compensation for administering the loan.

The lawsuit alleges violations of the Employee Retirement Income Security Act (ERISA)’s prohibited transaction rules. In 2018, Oetken dismissed many claims in the suit.

Now, Oetken has rejected TIAA’s arguments against class certification and granted the plaintiff’s motion to certify a class. In his decision, he notes that “there were 7,926 plans at issue with tens or hundreds of thousands of participants” and there are “over 460,000 loans at issue.”