New York Federal Judge Rules Against TIAA in Managed Account Suit

A federal district judge in New York denied retirement services and investing firm TIAA’s request to dismiss a lawsuit brought against the New York-based company, ordering the firm to provide an answer by June 21.

Plan participants John Carfora, Sandra Putnam and Joan Gonzales filed the initial complaint against TIAA in the U.S. Southern District Court of New York in October 2021 with lead attorney Schlichter Bogard & Denton LLP. The plaintiffs alleged that TIAA breached its fiduciary duties to participants under the Employee Retirement Income Security Act for allegedly cross-selling the firm’s adviser-managed account service known as Portfolio Advisor, which comes at a higher cost than remaining in the plan.

The plaintiffs were part of separate university defined contribution plans serviced by TIAA—though the plan sponsors were cited as breaching their fiduciary duty, none are named as defendants in the lawsuit.

The suit, John Carfora et al v. Teachers Annuity Association of America and TIAA-CREF Individual & Institutional Services LLC, was initially dismissed in September 2022, after which plaintiffs’ attorneys filed an amended complaint.

On Friday, U.S. District Court Judge Katherine Polk Failla ruled in favor of each of the arguments presented by 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, with little upside to those participants.”

“The named plaintiffs each represent that they were subject to aggressive cross-selling and rolled over their funds from their ERISA plans to Portfolio Advisor as a result,” the judge wrote.

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.

Judge Polk Failla also found that plaintiffs sufficiently alleged TIAA advisers cold-called participants in TIAA-administered plans under the guise of offering free financial planning services, but with the undisclosed intent of moving participants to the managed account offerings. 

“For example, Carfora specifically alleges that he was subject to emphatic cross-selling by a TIAA representative, who disavowed any conflict of interest in connection with her recommendation that Carfora execute a rollover to Portfolio Advisor from the Loyola Marymount University Defined Contribution Retirement Plan, and failed to inform Carfora that the fees and expenses of moving assets to Portfolio Advisor were higher than remaining in his employer-sponsored plan,” Polk Failla wrote.

In its motion to dismiss the suit filed in November, TIAA argued that the plaintiffs failed to sufficiently plead that the plan sponsors breached any fiduciary duties in connection with their retention of TIAA as a third-party service provider. The firm also argued that the suit failed to allege facts sufficient to support any finding TIAA was a knowing participant in the breach.

TIAA is represented by attorneys with law firm Wilmer Cutler Pickering Hale and Dorr LLP.

Representatives of TIAA declined comment. Neither attorneys with law firm WilmerHale nor attorneys for Carfora responded to requests for comment.

Carfora, Putnam and Gonzales brought the lawsuit individually and as representatives of a class of similarly situated individuals but have not asked the court to certify the class or to appoint class counsel.