Back on May 31, I wrote a blog post relating to the 19 class action cases brought against higher education institutions. That was a mere six days after a judge dismissed the case brought against Northwestern University, Divane v. Northwestern University. While in no way instructive towards the other 18 cases scattered across the country, it appeared to provide some optimism for other similarly situated defendants.
Not surprisingly, plaintiffs do not seem deterred. In Cassell v. Vanderbilt, the plaintiffs recently amended their complaint, alleging that the fiduciaries provided TIAA access to confidential information, which in turn, TIAA used to market other products and services. The amended complaint was granted by the court.[1]
The amended claim is unique in that it argues that sharing the participants’ data and allowing participants to be solicited was not in the best interest of participants. It also references that the marketing value of the information provided to TIAA was never quantified. The plaintiffs are simultaneously claiming that providing the information was not in their best interest, but even if it were, that the fiduciary should have achieved better cost structures in exchange for providing the data. The amended complaint appears to also seize upon negative press TIAA has recently received in the NY Times related to the sale of products outside of the retirement plans they serve.
Participant demographic data is necessary to meet compliance testing requirements. Wage is needed for compliance testing; termination date for notifying the Social Security Administration of benefits accrued; age for tracking minimum required distributions.
However, the claim does highlight one of the difficult decisions that plan sponsors, participants, and providers may have to wrestle in the years to come. As the cost of providing retirement plan services continues to compress, providers are looking for alternative ways to generate income from their retirement plan business. At the same time, plan sponsors are asking service providers to provide more comprehensive financial wellness education to their participants. Given the trends of fee compression, cross-selling, and sponsor desire for more services, the potential for conflicts continue.
Every fiduciary needs to be aware of how their providers are compensated for the work they do for their organization, both inside the plan and out. And when possible, those relationships should be quantified.
With each case, the plaintiffs’ firms pursuing these cases learns more and develops new approaches. It is far too early to know whether the latest claim against Vanderbilt has merit, but the issue of data use is one to watch closely in 2018.
Notes:
[1] Cassell v. Vanderbilt, Order in Response to Plaintiffs’ Motion for Leave to File Second Amendment Compliant, available here: https://www.napa-net.org/wp-content/uploads/vanderbilt-approval.pdf. The U.S. District Court granted the plaintiffs’ Motion in part and denied in part. The court allowed the new claims, but did not allow the plaintiff to re-bring any of the claims which were previously dismissed by the court.
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