Wilcox v. Georgetown Univ.
| Decision Date | 08 January 2019 |
| Docket Number | Civil Action No. 18-422 (RMC) |
| Parties | 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, v. GEORGETOWN UNIVERSITY, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
If a 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.
Darrell 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.
Georgetown 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).
Georgetown 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.
The 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 forcertain 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.
In 1905, Andrew Carnegie endowed a $10 million gift to fund pensions at thirty universities.1 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.2 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) ().
When 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) (). 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.3 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 (). "[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).
Defendants 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' participants.
Plaintiffs 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.
The University and Messrs. Augustini and Chatas (collectively, Georgetown) deny that they violated any duty to the Plans' Participants and move to dismiss the Complaint.
Each of 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 University.
In each 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 byTIAA, Vanguard, and Fidelity.4 The three investment platforms charge certain fees to Plan Participants, which are fully disclosed but which Plaintiffs assert are more expensive than need be.
Plaintiffs do not complain about investment options offered by Fidelity and they will not be further discussed.
Plaintiffs 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 offers a variety of investment options. The Court describes only those options that are challenged by Plaintiffs.
The 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 withTIAA 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.
The TIAA Traditional Annuity is available to Participants through either the Defined Contribution Plan or the Voluntary Plan but with important differences....
To continue reading
Request your trial