A New York federal court recently held that a service provider for employer-sponsored retirement plans was not liable as a fiduciary under the Employee Retirement Income Security Act (“ERISA”) when it used participant information to encourage certain plan participants to roll over assets into its more expensive managed account program.  Carfora v. Teachers Ins. Annuity Ass’n of Am., No. 21 Civ. 8384, 2022 U.S. Dist. LEXIS 175613 (S.D.N.Y. Sept. 27, 2022).

Plaintiffs are participants in defined contribution retirement plans for which Defendant Teachers Annuity Association of America and TIAA-CREF Individual & Institutional Services, LLC (“TIAA”) provides recordkeeping and administrative services.  TIAA also offers managed account services for an additional fee through a program called Portfolio Advisor.  According to Plaintiffs, TIAA used their personal information to encourage them to roll over assets from their employer-sponsored plans into Portfolio Advisor.  Portfolio Advisor, despite being more expensive, allegedly performed worse than the employer-sponsored plans.

Plaintiffs allege that TIAA acted as an ERISA fiduciary and violated its fiduciary duties by using Plaintiffs’ personal information to encourage them to switch to TIAA’s more expensive Portfolio Advisor product.  The District Court did not reach the question of whether TIAA breached any fiduciary duties because the Court held that TIAA was not an ERISA fiduciary in the first instance.

Under ERISA, one may become a fiduciary in one of two ways.  First, one may be specifically named a fiduciary in the plan document.  Second, one can be a de facto or functional fiduciary if he acts in a fiduciary capacity by, for example, rendering investment advice for a fee on a regular basis, or holding discretionary authority in the management or administration of the plan.

Plaintiffs argued that TIAA was a de facto fiduciary.

Plaintiffs first argued that TIAA was equitably estopped from arguing that it was not a fiduciary, based on a representation in a 2012 marketing brochure that it would “meet[] a fiduciary standard” in providing investment recommendations.  The District Court rejected this argument because Plaintiffs did not allege that they personally relied upon TIAA’s representations in the decade-old brochure.  Noting that equitable estoppel is only appropriate in “extraordinary circumstances,” the District Court concluded that the doctrine did not apply.

Plaintiffs next argued that TIAA could be held liable as a de facto fiduciary because it “render[ed] investment advice for a fee” and “on a regular basis” when it encouraged Plaintiffs to roll over assets to Portfolio Advisor.  Complicating this argument was the Department of Labor’s evolving and conflicting guidance on the matter.  In 2005, the DOL issued an opinion letter which stated that advice regarding distributions does not constitute “investment advice.”  In 2020, the DOL rescinded this letter and issued a contrary opinion that rollover advice is investment advice and can be advice “on a regular basis,” a requirement to create a fiduciary relationship.  The Court ultimately concluded that TIAA was not a fiduciary by virtue of its rollover advice, declining to give retroactive effect to the DOL’s 2020 opinion.

Plaintiffs further argued that TIAA’s use and access to plan participants’ confidential information created a fiduciary relationship.  The Court rejected this argument, concluding that plan participants’ data are not “plan assets,” and that TIAA’s actions did not create a fiduciary relationship.

Finally, the Court opined that the plan sponsors, who contracted with TIAA for recordkeeping services, were the proper fiduciaries under ERISA, and that Plaintiffs cannot transform “a grievance they might have against their plans for utilizing TIAA into a claim that TIAA was itself a plan fiduciary.”

Takeaways  

Although the Court declined to impose ERISA’s fiduciary obligations onto TIAA, the decision proved informative.  First, the plaintiffs’ bar is targeting service providers, and potentially plan sponsors, for representations and fees relating to rollovers.  Second, much of the Court’s reasoning was based on whether to apply retroactive effect to current DOL guidance, and had that guidance applied, the outcome may have been different.  Employers may be well served by reviewing service agreements and participant communications with ERISA counsel.