United States District Court, District of Columbia
DARRELL WILCOX and MICHAEL MCGUIRE, individually and as representatives of a class of participants and beneficiaries in and on behalf of the GEORGETOWN UNIVERSITY DEFINED CONTRIBUTION RETIREMENT PLAN and the GEORGETOWN UNIVERSITY VOLUNTARY CONTRIBUTION RETIREMENT PLAN, Plaintiffs,
GEORGETOWN UNIVERSITY, et al., Defendants.
ROSEMARY M. COLLYER, UNITED STATES DISTRICT JUDGE.
cat were a dog, it could bark. If a retirement plan were not
based on long-term investments in annuities, its assets would
be more immediately accessed by plan participants. These two
truisms can be summarized: cats don't bark and annuities
don't pay out immediately.
Wilcox and Michael McGuire work for Georgetown University.
Each man has an individual investment account in each of the
two retirement plans offered by the University. They allege
that Georgetown imprudently selected and retained certain
investment options that caused excessively high
administrative fees and that it failed to manage the
plans' investments prudently, in violation of the
University's fiduciary duties to the plans'
participants. This type of lawsuit seems to have taken higher
education by storm, with suits brought all over the country.
Georgetown moves to dismiss, arguing that Plaintiffs have no
standing to make some of their claims and that others fail to
state a claim on which relief can be granted. The motion to
dismiss will be granted as to all claims.
University in Washington, D.C. provides two retirement plans
for its faculty and staff members: the Georgetown University
Defined Contribution Retirement Plan (Defined Contribution
Plan) and the Georgetown University Voluntary Contribution
Retirement Plan (Voluntary Plan) (collectively “the
Plans”). The Plans are defined contribution, individual
account employee pension plans governed by the Employee
Retirement Income Security Act (ERISA) 29 U.S.C. § 1001
et seq. “[A] ‘defined contribution
plan' or ‘individual account plan' promises the
participant the value of an individual account at retirement,
which is largely a function of the amounts contributed to
that account and the investment performance of those
contributions.” LaRue v. DeWolff, Boberg &
Assoc., Inc., 552 U.S. 248, 250 n.1 (2008) (citation
omitted). By contrast, “a ‘defined benefit
plan,' generally promises the participant a fixed level
of retirement income, which is typically based on the
employee's years of service and compensation.”
Id. (citation omitted).
contributes an amount up to ten percent (10%) of an
employee's annual salary into the Defined Contribution
Plan and employees can contribute, as they choose, up to
three percent (3%) more to the Voluntary Plan. Each
participant has his own account in each Plan and decides
personally how to invest its funds across a wide array of
investment options, according to individual choice.
Georgetown is the designated Plan Administrator for both
Plans. See 29 U.S.C. §§ 1002(2)(A),
1002(34). It manages the Plans and their assets, including
selecting, monitoring, and removing investment options.
Plans are organized under Section 403(b) of the Internal
Revenue Code, 26 U.S.C. § 1 et seq. Titled
“Taxation of employee annuities, ” § 403
provides a set of rules for certain plans sponsored by
non-profit employers; it allows employer contributions and
part of an employee's salary to be set aside in an
individual account and then to increase in value (one hopes)
without immediate taxation to the employee. Id.
§ 403. This provision predates ERISA and speaks directly
to the heritage of the collegiate retirement system.
1905, Andrew Carnegie endowed a $10 million gift to fund
pensions at thirty universities. In 1906, Congress chartered
the Carnegie Foundation for the Advancement of Teaching to
provide a system of retirement pensions for university
professors. Act to Incorporate the Carnegie Foundation for
the Advancement of Teaching, ch. 636, 34 Stat. 59 (Mar. 10,
1906). When, by 1918, it became clear that Mr. Carnegie's
gift would be insufficient to meet the need, the Carnegie
Foundation founded the Teachers Insurance and Annuity
Association, now known as TIAA. TIAA developed annuity
contracts with “fundamental provisions specially
designed for college retirement plans.” Greenough at
14, 17. An annuity is essentially a long-term insurance
contract that guarantees regular payments at retirement and
for the life of the holder. This collegiate retirement system
of annuities predated the enactment of Internal Revenue Code
§ 403(b), which was adopted in 1958 to provide favorable
tax treatment for “tax-sheltered annuities, ”
such as those offered by the Plans. Technical Amendments Act
of 1958, Pub. L. No. 85-866, § 1022(e), 88 Stat. 829,
1972 (1974) (codified as amended at 26 U.S.C. § 403(b)).
adopting ERISA in 1974, Congress amended the Code so that
§ 403 plans could offer mutual funds in addition to
annuities. See ERISA, Pub. L. No. 93-406, §
1022(e), 88 Stat. 829, 1072 (1974) (codified as amended at 26
U.S.C. § 403(b)(7)). At that time, “the defined
benefit plan was the norm of American pension
practice.” LaRue, 552 U.S. at 255 (alteration
and internal quotation marks omitted). Under a defined
benefit plan, an eligible employee who has worked sufficient
years receives a promised monthly pension benefit for life.
Because of the huge legacy costs of funding such plans for
growing numbers of retirees, many employers have changed to
“defined contribution” plans through which an
employer's contribution is specified and capped, no
matter how long a retired employee might live. In response to
this change, Congress adopted legislation by which employees
can invest in various other tax-deferred plans, such as
individual § 401(k) plans. Revenue Act of 1978, Pub. L.
No. 95-600, § 135(a), 92 Stat. 2763, 2785 (codified as
amended at I.R.C. § 401(k) (2006)). “[D]efined
benefit plans are now largely limited to the public sector,
very large employers, and multi-employer plans of large
national unions such as the Teamsters.” David Pratt,
To (b) or Not to (b): Is That the Question? Twenty-first
Century Schizoid Plans Under Section 403(b) of the Internal
Revenue Code, 73 Alb. L. Rev. 139, 144 (2009).
Christopher Augustini and Geoff Chatas have served as
Georgetown's Senior Vice President and Chief
Administrative Officer, and as fiduciaries to the Plans,
until May 2017 and from February 30, 2018 through to the
present, respectively. They, and Georgetown, are sued for
alleged breaches of their fiduciary duties to the Plans'
Darrell Wilcox and Michael McGuire are participants in both
Plans. They filed this lawsuit on February 23, 2018 and
challenge the expenses of the Plans, which they say are
detrimental to the interests of the Participants, wasteful,
and breach the fiduciary duties of the Plans'
fiduciaries. See Compl. [Dkt. 1]. Specifically,
Plaintiffs attack the expense of separate recordkeeping
services that maintain the Plans; the expense of some of the
investment options that are available; the number of
investment options that are offered; and the inclusion in the
Plans of certain investment options.
University and Messrs. Augustini and Chatas (collectively,
Georgetown) deny that they violated any duty to the
Plans' Participants and move to dismiss the Complaint.
Description of the Plans
the Georgetown Plans provides individual accounts for all
Participants. Georgetown contributes an amount equal to 5% of
each Participant's salary into his account in the Defined
Contribution Plan. Participants may, but are not required to,
voluntarily contribute an additional three percent (3%) of
their salaries to the Defined Contribution Plan; if a
Participant does so, Georgetown matches these contributions
at a little more than one-and-one-half for each dollar
contributed, i.e., 1.67-to-1. As a result, a
Participant who voluntarily contributes the entire
allowed-amount of 3% of his salary into the Defined
Contribution Plan receives a 5% match of funds from the
Plan, the Participant directs how his funds are invested from
a broad set of choices that includes fixed and variable
annuities offered by TIAA and mutual funds offered by TIAA,
Vanguard, and Fidelity. The three investment platforms charge
certain fees to Plan Participants, which are fully disclosed
but which Plaintiffs assert are more expensive than need be.
Fidelity Investment Options
do not complain about investment options offered by Fidelity
and they will not be further discussed.
Vanguard Investment Options
complain that Georgetown “used more expensive funds . .
. than investments that were available to the Plans.”
Compl. ¶ 131. Specifically, they challenge the
particular share classes of Vanguard funds that were
available to Participants. Neither Plaintiff, however,
invested in the Vanguard funds or alleges that he intended or
intends to do so.
TIAA Investment Options
offers a variety of investment options. The Court describes
only those options that are challenged by Plaintiffs.
TIAA Traditional Annuity is a fixed annuity. “Under a
classic fixed annuity, the purchaser pays a sum certain and,
in exchange, the issuer makes periodic payments throughout,
but not beyond, the life of the purchaser.”
NationsBank of N.C., N.A. v. Variable Annuity Life Ins.
Co., 513 U.S. 251, 262 (1995). When a Georgetown Plan
Participant elects to invest in the TIAA Traditional Annuity,
he enters into a direct contractual relationship with TIAA
concerning its terms. Mem. of Law in Supp. of Defs.' Mot.
to Dismiss (Defs.' Mem.) [Dkt. 18-1] at 6. The University
is not a party to that contract.
TIAA Traditional Annuity is available to Participants through
either the Defined Contribution Plan or the Voluntary Plan
but with important differences. A Participant who invests his
money from the Defined Contribution Plan into the TIAA
Traditional Annuity will earn greater interest (typically, an
additional 0.75% a year) than the same investment from the
Voluntary Plan. The difference in earning power is inversely
reflected in the difference in the accessibility of the
invested monies: a Participant who elects the TIAA
Traditional Annuity through the Voluntary Plan may withdraw
his funds at any time without penalty but a Participant who
elects the TIAA Traditional Annuity through the Defined
Contribution Plan may not withdraw his funds until he leaves
his employment with Georgetown or, if he wishes to re-direct
his investments, in ten annual installments. Upon his
departure from employment, such a Participant can leave his
funds invested in the TIAA Traditional Annuity for the long
term and receive a monthly pension payment whenever he
qualifies, or withdraw his funds immediately. If he elects to
withdraw his funds immediately from the Defined Contribution
plan, he will receive a lump-sum payout but must pay a 2.5%
complain about both limiting features of the TIAA Traditional
Annuity: first, that it “prohibits participants from
re-directing their investment into other investment options
during their employment except in ten annual installments,
” and second, that it “prohibits participants
from receiving a lump sum distribution after termination of
employment unless the participant pays a 2.5% surrender
charge, ” both of which “violate ERISA's
prohibition on the imposition of a penalty for early
termination of a contract.” Pls.' Mem. of Law in
Opp'n to Defs.'s Mot. to Dismiss Pls.'s Compl.
(Opp'n) [Dkt. 24] at 10 (citing Compl. ¶¶ 99,
contends that Plaintiffs have shown no injury-in-fact related
to the TIAA Traditional Annuity because any claim they may
present is not ripe. Neither alleges that he has left or
plans to leave Georgetown or that he wishes to re-direct his
CREF Stock Account is a variable-annuity investment fund.
CREF stands for College Retirement Equities Fund, which TIAA
established in 1952. Defs.' Mem. at 7 n.13. As it advises
investors through its prospectus, the CREF Stock Account
seeks to achieve “[a] favorable long-term rate of
return through capital appreciation and investment income by
investing primarily in a broadly diversified portfolio of
common stocks.” The Stock Account is globally diversified
and “seeks to maintain the weightings of its holdings
as approximately 65-75% domestic equities and 25-35% foreign
equities.” Id. at 27 (citing 2017 CREF
Prospectus). As a result, the Stock Account advises
The benchmark for the Stock Account is a composite index
composed of two unmanaged indices: the Russell 3000®
Index and the MSCI All Country World ex USA Investable Market
Index (“MSCI ACWI ex USA IMI”). The weights in
the composite index change to reflect the relative sizes of
the domestic and foreign segments of the Account and to
maintain its consistency with the Account's investment
Id. at 7 (citing 2017 CREF Prospectus).
Georgetown Plans assert that the global investments
undertaken by the CREF Stock Account are not fully accounted
for by federal regulations that control Fiduciary
Requirements for Disclosure in Participant-Directed
Individual Account Plans. 29 C.F.R. §
2230-404a-5(d)(1)(iii); see also 75 Fed. Reg. 64,
910, 64, 916 (Oct. 20, 2010) (disallowing the use of
composite benchmarks). Because it is a composite fund but
cannot use composite benchmarks in certain disclosures, the
CREF Stock Account references only the domestic Russell 3000
benchmark in some materials although its prospectus advises
that the influence of foreign investments is reported only by
the MSCI All Country World ex USA Investable Market Index and
that a true benchmark for the Stock Account is both the
Russell 3000 and the MSCI All Country World ex USA ...