Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Teachers Insurance and Annuity Association of America dodged a lawsuit accusing it of charging excessive fees to participants in retirement plans sponsored by the University of Chicago and Nova Southeastern University ( Malone v. Teachers Ins. & Annuity Ass’n of Am. , 2017 BL 70595, S.D.N.Y., No. 1:15-cv-08038, 3/7/17 ).
Judge P. Kevin Castel March 7 held that TIAA didn’t qualify as a fiduciary under the Employee Retirement Income Security Act. This is important because without fiduciary status, TIAA couldn’t be held liable under ERISA.
Castel’s decision puts an end to a proposed class action alleging that TIAA misused its dual position as record keeper and seller of group annuity contracts to take excessive compensation from retirement plan assets. Castel said TIAA’s practice of refusing to share certain fees as a record-keeping offset with third-party providers wasn’t an exercise of discretion that would make TIAA a fiduciary.
At issue in the case were the fees for services provided by TIAA to the plans, which included investment and record-keeping services. The parties agreed that TIAA would be paid for its record-keeping services through revenue sharing—TIAA would allocate a portion of the investment fee to pay for the record-keeping fees. However, TIAA wouldn’t allow this revenue sharing to be paid to a record-keeper other than itself.
The judge rejected the participants’ argument that TIAA became a fiduciary by entering into the record-keeping agreement and by periodically collecting fees. In doing so, Castel said that the original agreement between TIAA and each plan regarding TIAA’s compensation wasn’t a discretionary act giving rise to fiduciary obligations on behalf of TIAA.
Litigation involving 403(b) plans—which are similar to 401(k) plans but for university and other nonprofit workers—became a hot issue last year when 12 prominent American universities were accused of charging excessive fees in their plans. Some of the targeted colleges included Yale, NYU, MIT and Columbia.
Bailey & Glasser LLP and Izard Kindall & Raabe LLP represent the participants. Goodwin Procter LLP represents TIAA.
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