TIAA Settlement Agreement Goes Beyond Monetary Compensation

TIAA has reached a settlement agreement in a proposed class action lawsuit brought by its own employees, accusing the company of self-dealing within its own retirement plan, in the U.S. District Court for the Southern District of New York.  

The case history Richards-Donald vs. TIAA  lines up closely with other “self-dealing” challenges filed in district courts across the U.S. by participants in retirement plans at companies that offer retirement investment products and services. These companies broadly turn to their own investment products and recordkeeping services rather than shopping around in the wider marketplace, leading participants to argue their plan sponsors are not doing all they can to operate the plan prudently and ensure both expenses and conflicts of interest are minimized.

This particular settlement ties back to a compliant initially filed in October 2015, which accused TIAA of breaching fiduciary duties under the Employee Retirement Income Security Act (ERISA) and engaging in self-dealing and prohibited transactions by favoring for its own retirement plans investment options, managed by TIAA or affiliated entities, and by having TIAA provide recordkeeping services to boot. Plaintiffs argued that the strong prevalence of revenue sharing on the investment menu and a lack of low-cost passive investments also represented a conflict for TIAA, as both the recordkeeper and fund provider.

For its part, TIAA argued the services it delivers to its own retirement plan are of the highest quality and appropriately priced, and the firm continues to deny any wrongdoing here. As a TIAA spokesman writes, “While TIAA strongly denies these claims, to avoid the significant time, cost and distraction of ongoing litigation, we agreed to settle. We value our people and are committed to providing our employees with retirement plans that help ensure their financial well-being, and have always acted in their best interests.”

The parties in the case have engaged multiple times in court over these arguments, including participating in mediation before retired District Court Judge Daniel Weinstein, which led to the current settlement agreement. Details included in the text of the settlement agreement show it will apply to “all participants in the Teachers Insurance and Annuity Association of American Retirement Plan from October 14, 2009, to April 30, 2017.” Aspects of the settlement include both monetary amounts of approximately $5 million and non-monetary settlement terms.  

With the settlement agreed to by both parties, the district court technically has dismissed the lawsuit with prejudice and released all claims against TIAA. The settlement agreement includes extensive language, amounting to dozens of pages, seeking to insulate TIAA from any further claims along these lines.

NEXT: Broad non-monetary settlement terms 

In addition to the $5 million settlement fund that will, practically but not legally speaking, pay back participants for the excessive fees they say they paid to TIAA, the settlement agreement also includes “certain therapeutic measures relating to the plans and their participants and beneficiaries … to the extent non inconsistent with ERISA.”

For example, TIAA has agreed to add at least 10 non-proprietary investment options to the plans, of which five will have investment management fees of 15 basis points or less. TIAA further “agrees to request the least-expensive share class available to the plans for these non-proprietary investment options.”

In the event new options pay revenue sharing, TIAA “agrees to credit the revenue sharing payments to the participants in the plans whose accounts are invested in the non-proprietary funds on a proportional basis.” This was seemingly a major point of contention for participants, who argued that TIAA's retention of revenue sharing was impermissible under ERISA 

A significant number of other non-monetary settlement terms are described, including that on a one-time basis TIAA will provide the class with overview information about the changes being made to the investment menu, particularly with respect to fees and revenue sharing. TIAA also agrees to offer a brokerage window to permit plan participants to invest in an even broader range of non-proprietary mutual funds—and to employ independent consultants to help oversee this transition process. In addition, TIAA agrees to implement an education program “based on its reasonable judgement of what is in the best interest of plan participants and in accordance with the terms of the plans.”

The full text of the settlement decision further details requirements TIAA will have to meet in order to resolve these claims and is available here.