TIAA's 'high-fee products push' lawsuit: Best practices for all retirement plan sponsors
Companies need to fully understand what the plan fees are so they can be “fully transparent” with their workers, said law firm Schlichter Bogard, which is representing plaintiffs suing TIAA for steering them into high-fee investments.
Earlier this month, four members of university-sponsored retirement plans filed a class-action lawsuit against TIAA (Teachers Insurance and Annuity Association of America) and Morningstar, alleging the firms devised an “unlawful scheme” to boost asset flows and breached their fiduciary duties. The suit alleged an investment advice tool the firms developed steered participants into investment products that were not in their best interest.
“A critical component of the scheme was for TIAA to leverage its position as a recordkeeper to employer-sponsored plans, in order to gain access to participants and make investment recommendations that favored its own products,” according to the complaint, filed in federal court on August 5.
Schlichter Bogard is representing the plaintiffs in Kelly v. Teachers Insurance and Annuity Association of America, seeking class action status for violations in both ERISA-covered and non-ERISA covered retirement plans.
According to the complaint, the tool, known as the Retirement Advisor Field View, was developed in response to a drop in market share for TIAA’s retirement plan services business. TIAA and Morningstar are accused of developing the tool that has improperly steered clients toward profitable proprietary investment vehicles, including the TIAA Traditional Annuity and the TIAA Real Estate Account, according to the complaint.
Companies that are now using TIAA services “should prohibit TIAA from using confidential financial information obtained as recordkeeper to market non plan products and services,” said Jerry Schlichter, founding and managing partner of Schlichter Bogard, who pioneered litigation against corporate plan sponsors of 401(k) plans for overcharging participants on fees. “They should also demand as a starting point that TIAA provide full disclosure to the sponsors and to participants of how they developed their asset allocation program, all conflicts of interest they have in the program, and require that TIAA allow, in their asset allocation program, non-proprietary annuities and funds to be included that are not currently in the plan.”
Related: TIAA allegedly steering clients into high-fee products for billions
In addition, employers and plan sponsors “should fully understand themselves what the fees are and any conflicts of interest,” said Schlichter, so they can be “fully transparent” with their employees.
In response to the lawsuit, TIAA had the following comments: “The lawsuit is without merit and TIAA will defend itself vigorously.
“We stand behind the Retirement Advisor and Retirement Advisor Field View tools, and the investment advice and selection of asset classes provided within, which are developed by third-party Morningstar Investment Management. The tool’s asset allocation recommendations use the asset classes and investments available within the participant’s employer-sponsored retirement plan, which are selected by the plan sponsor or a third-party consultant selected by the sponsor. TIAA representatives are required to adhere to the tool’s recommendation and are trained on this. Additionally, we take our regulatory compliance and disclosure obligations very seriously and provide clients required disclosures around fees and conflicts of interests.
“TIAA works very hard to earn and keep our clients’ trust. TIAA believes in the importance of advice in achieving better outcomes in retirement and we take great care to deliver advice that is in their best interest. TIAA does not put its own interests ahead of our clients. Any claims to the contrary are false.”