Vanderbilt University Faces New Claim Over Product Marketing to 403(b) Participants

A second amended complaint in a case accusing fiduciaries of the Vanderbilt University 403(b) plan of failing to manage the plan prudently, in violation of the Employee Retirement Income Security Act (ERISA), includes a new claim related to the defendants’ alleged failure to protect plan assets by allowing third parties to market services to participants.

The new complaint notes that the defendants were required to independently assess “the prudence of each investment option” for the plan on an ongoing basis. It says they breached this duty specifically by allowing one of its recordkeepers, TIAA to use its position as a recordkeeper to obtain access to participants, gaining private and sensitive information including participants’ contact information, their choices of investments, the asset size of their accounts, their employment status, age, and proximity to retirement, among other things. “Defendants allowed TIAA to use this valuable and confidential information to sell TIAA products and wealth management services to the Plan’s participants, and failed to even attempt to determine the value of this marketing benefit,” the complaint says.

It goes on to say that the defendants should have protected this data as plan assets and by not doing so, failed to act in the best interest of plan participants.

The complaint notes that historically before 2009, “403(b) plan investment options were often sold by recordkeepers and their representatives rather than offered by plan sponsors as evaluated investments.” This is a reference to a practice of 403(b) plan sponsors allowing vendors to sit in cafeterias or employee lounges trying to sell products.

The complaint cites instances of several universities changing their practices after 403(b) regulations were passed in 2007, as well as annual surveys by the Plan Sponsor Council of America (PSCA) which found that in each year from 2010 through 2014, the overwhelming majority of 403(b) plans—over 80%—have only a single recordkeeper.

In a memorandum in support of plaintiffs’ motion to file an amended complaint, it was pointed out that the plaintiffs have not delayed in bringing their amended complaint because it will be filed before discovery in the case has commenced. In his order granting plaintiffs’ motion, U.S. Magistrate Judge Joe B. Brown of the U.S. District Court for the Middle District of Tennessee said the new complaint will not include claims previously dismissed by the court.