252 F. Supp. 3d 1344
D. Ga.2017Background
- Plaintiffs are participants and beneficiaries of two Emory 403(b) retirement plans holding roughly $3.7 billion combined, alleging fiduciaries (Emory Investment Management, Pension Board, individual members) breached ERISA duties.
- Core allegations: fiduciaries failed to use plan bargaining power to obtain lower-cost institutional shares, retained higher-cost proprietary and actively managed funds required by recordkeepers (not in participants’ interest), and permitted "locking-in" arrangements with TIAA-CREF that impeded removal or switching of recordkeepers.
- Plaintiffs challenge: excessive investment and annuity fees ("fee layering"), imprudent inclusion/retention of certain funds (e.g., CREF Stock Account, TIAA Real Estate), unreasonable administrative/recordkeeping structure (multiple recordkeepers, revenue sharing), and prohibited transactions with parties-in-interest.
- Defendants moved to dismiss the first amended complaint under Rule 12(b)(6); earlier motion rendered moot.
- District court evaluated plausibility of claims (Iqbal/Twombly standard) and whether plaintiffs pleaded sufficient facts to proceed to discovery on prudence, loyalty, and prohibited-transaction theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Excessive investment fees / retail vs. institutional shares | Fiduciaries used retail shares and failed to negotiate institutional shares despite plan size and waiver opportunities, resulting in higher expense ratios | Fee range (0.07%–1.41%) is within courts' accepted bounds; retail-vs-institutional alone insufficient to plead imprudence | Claim survives: plaintiffs plausibly alleged imprudence in choosing retail over institutional shares given bargaining power and factual allegations (Braden relied upon) |
| Too many investment options | Offering 111 largely duplicative options prevented bargaining leverage and was imprudent | More options give participants choice; not inherently harmful | Claim dismissed: court finds offering many options alone does not state imprudence (citing Loomis) |
| Use/retention of actively managed or proprietary funds and fee layering (annuities) | Recordkeepers forced proprietary funds into lineup; fees included multiple layers (administrative, distribution, M&E risk, advisory, liquidity) that did not benefit participants | Having active funds is not per se imprudent; fees for annuities/revenue sharing are common and may be reasonable | Claims survive: plaintiffs adequately alleged flawed selection/monitoring process, improper fee layers, and potential self-dealing sufficient to proceed |
| Retention of underperforming funds (CREF Stock, TIAA Real Estate) | Funds underperformed benchmarks and lower-cost alternatives yet were retained and not frozen/removed | Plaintiffs used incorrect benchmarks; performance comparisons are factual issues | Claim survives: allegations adequate to plead imprudent retention; benchmark disputes reserved for summary judgment (Tibble principle) |
| Administrative/recordkeeping structure and revenue sharing (single vs. multiple recordkeepers; bidding) | Multiple recordkeepers and revenue-sharing arrangement caused excessive recordkeeping fees; fiduciaries failed to seek competitive bids | No ERISA requirement to use single recordkeeper or solicit bids; revenue sharing is common practice | Claims survive: plaintiffs plausibly alleged imprudent monitoring/structuring and revenue-sharing overpayment; failure to solicit bids may be imprudent (George cited) |
| Lock‑in arrangements & statute of limitations (Count I) | TIAA required inclusion of certain accounts and recordkeeping, creating an arrangement that prevented removal and favored TIAA over participants | Allegations are largely time-barred and hindsight-based; initial arrangement lawful | Claim survives in part: continuing duty to monitor allows claims based on failures within six years before filing; damages prior to that period dismissed under 29 U.S.C. § 1113 |
| Prohibited transactions / party‑in‑interest and mutual‑fund exemption | Payments to TIAA and revenue sharing to proprietary funds were prohibited transactions benefiting a party-in-interest | Many challenged investments are mutual funds and thus exempt; revenue-sharing payments from mutual-fund assets are not plan assets (Hecker) | Claims survive in part: plaintiffs plausibly alleged prohibited transactions for non‑mutual‑fund accounts and conduct that could be self-dealing; claims relating to mutual funds or revenue sharing treated as plan asset (per Hecker and §1002(21)(B)) are dismissed as pleaded |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585 (imprudence may be pled where fiduciary failed to seek lower‑cost share classes or engaged in a flawed selection process)
- Tibble v. Edison Int’l, 135 S. Ct. 1823 (continuing duty to monitor plan investments)
- Tussey v. ABB, Inc., 746 F.3d 327 (revenue sharing can lead to excessive fees if not monitored)
- Hecker v. Deere & Co., 556 F.3d 575 (fees collected from mutual fund assets may not be treated as plan assets for prohibited-transaction claims)
- George v. Kraft Foods Glob., Inc., 641 F.3d 786 (competitive bidding and selection process relevant to prudence of recordkeeping arrangements)