Compliance October 13, 2021

TIAA Faces New Managed Account Rollover Complaint Months After Settling SEC Charges

A new lawsuit suggests the individual advisory program TIAA clients were rolled into was significantly more expensive and generated hundreds of millions of dollars in fees for TIAA—without providing commensurate performance benefits.

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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.

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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.

Compliance October 13, 2021

Social Security Benefits Will Grow 5.9% in 2022 Amid Renewed Inflation Concerns

The important federal benefit increases when the cost of living rises, as measured by the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers, or the ‘CPI-W.’

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The approximately 70 million Americans drawing core Social Security benefits and Supplemental Security Income (SSI) payments will see their benefits grow by 5.9% in 2022.

These federal benefits increase when the cost of living rises, as measured by the DOL’s Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the “CPI-W.”

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As the Social Security Administration’s announcement explains, the CPI-W rises when inflation increases, leading to a higher cost of living. This change means prices for goods and services, on average, are a little more expensive, so the cost-of-living adjustment (COLA) helps to offset these costs.

The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors and disability beneficiaries, SSI recipients, and representative payees. If these payees want to know their new benefit amount sooner, they can obtain a secure Social Security COLA notice using the Message Center in the online Social Security account portal. Increase information will be available online in early December prior to the mailed notice.

The Social Security benefit announcement comes at a time when Americans are increasingly worried about retirement risks related to market volatility, inflation and COVID-19. One recent study from Allianz Life found that more people—54% in the third quarter—were worried that a big market crash is in on the horizon, compared with 45% in the second quarter and 52% in the first. According to the study, these worries came as cases of the Delta variant were on the rise and as the markets continued their volatile trajectory.

“People were feeling better about market risks to their retirement this summer when we saw that brief return to normalcy before getting a Delta-driven reality check,” says Kelly LaVigne, Allianz Life vice president of consumer insights. “Now, nearly seven in 10 (69%) say they are worried that the increase in COVID infections will cause another recession.”

In related comments shared with PLANADVISER, Caleb Thibodeau, a global capital markets associate for Validus Risk Management, says the September Consumer Price Index (CPI) year-over-year increase of 5.4% adds to the series of upside inflation results over the past six months. While not a major overshoot compared with expectations, Thibodeau says the market appears to be becoming more apprehensive of continuingly high or “persistent” inflation numbers.

“Previous contributions to a higher CPI came predominantly from transitory reopening imbalances, such as airfares, hotel rates or used cars,” he says. “More than half of the 0.4% month-over-month increase for September was from increases in food or shelter-related costs, which is a marked shift toward non-transitory price increases. While the Federal Reserve continues to encourage inflation in order to achieve ‘price stability’ as one of its two main mandates, a shift to non-transitory inflation could be problematic and force monetary tightening on a more shortened timescale.”

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