TIAA Gets Massive ERISA Class Over Plan Loan Program Undone

Teachers Insurance & Annuity Association convinced the Second Circuit to undo the certification of a class of thousands of retirement plans in a lawsuit challenging the company’s plan loan program, according to a ruling issued Thursday.

The district judge who granted class status didn’t properly weigh factual differences among the various plan loans or the effects of certain statutory exemptions in the Employee Retirement Income Security Act, the court ruled. Certain of TIAA’s affirmative defenses—that the plan loans bear reasonable rates of interest and are pegged to “adequate consideration"—may not be capable of resolution on a class-wide basis and should have been considered more closely in the class certification analysis, the court said.

The plans may have the same basic structure, but the lower court “made no findings about the interest rates that TIAA credited on the collateral, the interest rates that participants paid, and whether those rates varied across loans to support its conclusion that the class members were adversely affected in the same way,” the US Court of Appeals for the Second Circuit said.

The court vacated the class certification ruling and sent the case back to district court with instructions to reconsider whether the plaintiffs have shown that common legal questions predominate over individual ones, as required by the federal rules governing class actions.

Loan Program

The lawsuit claims TIAA used its retirement plan loan program to unlawfully pocket more than $50 million per year when borrowers repaid their loans. Plaintiff Melissa Haley says TIAA forces retirement investors who take plan loans to transfer 110% of the loan amount to TIAA’s general account as collateral—a practice that allegedly allows TIAA to keep a portion of the interest payments for itself.

A federal judge in Manhattan certified a class of more than 8,000 retirement plans. Although it dismissed Haley’s fiduciary breach claims against TIAA, it allowed her to move forward under the theory that TIAA is a non-fiduciary that knowingly participated in ERISA-prohibited transactions.

According to TIAA’s appeal of that ruling, there’s “no evidence that each plan’s arrangement with TIAA was the same, that the plan documents under which loans were offered were the same, that each loan was offered on the same terms, or that the expansive class’s claims would succeed or fail in unison.”

The case drew the attention of several industry groups. The US Chamber of Commerce and the Securities Industry and Financial Markets Association filed a brief urging the Second Circuit to undo the class certification order. They argued the “one-size-fits-all” litigation against a retirement plan service provider “subverts ERISA’s basic design, which asks plan fiduciaries to make informed decisions based on the particular needs of their plan.”

Legal advocacy group Public Justice filed a brief saying it supports class certification in cases like this one, which involves “small amounts lost by a large number of plan participants caused by similar actions taken by the same defendant.” AARP also argued in favor of class certification, saying it’s vital to American’s retirement security that courts allow class actions to challenge plan mismanagement.

The opinion was written by Judge John M. Walker Jr. and joined by Judges Jon O. Newman and Richard J. Sullivan.

Goodwin Procter LLP represents TIAA. Berger Montague and Schneider Wallace Cottrell Konecky LLP represent Haley.

The case is Haley v. Teachers Ins. & Annuity Ass’n of Am., 2d Cir., No. 21-805, 12/1/22.