A  little noticed class action law suit first filed against TIAA-CREF in 2009 is finally coming home to roost for many fiduciaries of 403(b) plans-without many affected plans even having a clue that they have become members of that class action. The case is Bauer-Ramazani, et al. v. Teachers Insurance and Annuity Association of America-College Retirement and Equities Fund (TIAA-CREF), et al., Case No. 1:09-CV-190, pending in federal court in Brattleboro, Vermont.

The lawsuit challenges the manner in which TIAA manages what is commonly known as the "gain-loss" processes related to the untimely fulfillment  of participant investment instructions in the "separate account" under TIAA’s ERISA  variable annuity contracts. 

This is a critical issue in the operation of these 403(b) plans.  It is also the sort of claim one might expect to be brought by fiduciaries of the affected 403(b) plans, (the ones with the legal responsibility for managing these plans) and that the named members of the class would be other affected plans. But neither is the case here. In a legal absurdity, the "named plaintiffs," (that is, those who brought the suit and who are legally charged with representing the interests of the affected plans in the class) are not the affected plans or plan fiduciaries, but two plan participants in a small 403(b) plan in Vermont.  And the court documents seem to be geared instead  to individual participants in the affected plans, not the fiduciaries of those plans.

This was all made possible by the US Supreme Court landmark decision in LaRue, which established that participants could maintain certain fiduciary lawsuits as long as they were representing the plan as a whole, and not as a claim for their own benefits.

Now the United States District Court in Vermont has approved that class, which means the class action is now  proceeding to litigation on the merits of the claims. The definition of the class includes "all persons, including all ‘persons’ as defined by 29 U.S.C. § 1002(9), who at any time during the Class Period requested a transfer or distribution of TIAA-CREF mutual fund or money market accounts covered by ERISA whose accounts were not transferred or distributed within seven days of the date the account was valued and were denied the investment gains.”

Because of the operation of ERISA, "persons" in this context also means "plans," as a participant’s rights under a plan are derivative of the plan’s rights. So every 403(b) ERISA Plan which holds a TIAA contract during the class period (which is August 17, 2003 to May 9, 20013) is a member of the class.

This is where it really does get complicated. In spite of LaRue, fiduciaries of these plans likely still have an obligation to monitor this lawsuit, which includes making those decisions related to the plan’s involvement in the lawsuit: the representation of their interests in the lawsuit; the management of the lawsuit;  the adequacy of the class representatives; and any settlement which may be achieved.  There will be inevitable problems here, should the participants of a plan in the class disagree with their plan’s fiduciaries on the conduct of the litigation, or on settlement offers.

This is serious stuff. So, you would think,  that all of TIAA’s plans would receive notice of this important lawsuit, or that at least the notices were to be geared for them. For example, the right to opt out of the lawsuit has just passed on August 15, and you would think that fiduciaries would need to know that information.

Well, think again. Though the Federal Rules of Civil Procedure require members of a class  to be given the "best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort," (the "cy pres" notice) it does not appear that the form of notice approved by the court accommodated notice to the affected plans. Many plans and their related fiduciaries are yet unaware  of this lawsuit. The cynic would say that the counsel for neither the Plaintiffs or Defense viewed it in their interests to raise with the Court the thought that plans and fiduciaries would be class members, and to design notices which would reach those class members.  So the Court approved a form of notice which did not include a method by which plans could be readily notified, being seemingly designed instead to reach  individual participants.

This is important, with the period for opting out of the class-a fiduciary choice-passing.  Fiduciaries will now be bound by whatever is found by the Court and, if a number of the arguments presented by either party to date is any indicator, getting a sound decision by the Court may be mere serendipity.



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