New Complaint Targets TIAA’s Managed Account Rollovers

Earlier this year, the firm settled similar charges from the SEC and the New York attorney general accusing it of making inaccurate and misleading statements to rollover clients.

A new Employee Retirement Income Security Act (ERISA) complaint has been filed in the U.S. District Court for the Southern District of New York, naming as defendants the Teachers Insurance and Annuity Association of America (TIAA) and TIAA-CREF Individual and Institutional Services LLC.

Allegations in the complaint—filed by the highly active ERISA-focused law firm Schlichter, Bogard and Denton—mirror those made by the U.S. Securities and Exchange Commission (SEC) in a separate regulation action taken this summer in coordination with the New York attorney general.

According to the regulators, over the course of six years, tens of thousands of customers were pressured by TIAA advisers to move their investments from low-cost, employer-sponsored retirement plans to higher-cost, individually managed accounts. The regulators say the individual advisory program impacted clients were rolled into was significantly more expensive than employer-sponsored plans and generated hundreds of millions of dollars in fees for TIAA—without providing commensurate performance benefits to the investors in question.

That matter brought by the SEC and the New York attorney general was resolved via a settlement, with TIAA paying $97 million to the settle charges of making inaccurate and misleading statements to rollover clients. Asked for comment on that settlement, a TIAA spokesperson said the company actively cooperated with regulators and that it was “pleased to settle a matter that covers a time period that ended more than three years ago.”

The new complaint similarly alleges that TIAA “instituted a corporate policy requiring the use of fraudulent sales tactics to induce individuals to transfer assets from their low-fee employer-sponsored retirement plans to TIAA’s high-fee ‘Portfolio Advisor’ program and other lucrative non-plan products.

“A critical component of the scheme was for TIAA to abuse its position as a recordkeeper to employer-sponsored plans to harvest highly confidential and personal financial data regarding plan participants,” the new lawsuit continues. “Armed with this sensitive information, TIAA used it to identify individuals with large account balances nearing retirement as targets for TIAA’s sales representatives, who then used manipulative ‘fear selling’ tactics and falsely portrayed TIAA’s high-cost non-plan products as the preferred solution without regard to whether the recommendation was in the participants’ best interests.”

The plaintiffs say TIAA also concealed sales representatives’ conflict of interest, “requiring sales representatives to falsely claim that their recommendations were objective and non-commissioned when in fact TIAA’s bonus structure created financial incentives to recommend Portfolio Advisor and similar high-cost non-plan products.”

As a result of this scheme, the lawsuit alleges, TIAA “reaped massive and unlawful profits at the expense of employees and retirees who were charged higher fees for products and services that underperformed those available through their employers’ tax-favored plans.”

A spokesperson for TIAA shared the following comment regarding the new complaint: “We believe this suit is without merit and intend to vigorously defend against these claims. TIAA remains steadfast in our commitment to helping our clients create secure, successful retirements and long-term financial success, as we have for more than 100 years.”

The new lawsuit can be viewed here.