Daugherty v. Univ. of Chi.

WINIFRED J. DAUGHERTY et al., onbehalf of themselves and a class, Plaintiffs, v. THE UNIVERSITY OF CHICAGO, Defendant.

No. 17 C 3736

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 22, 2017

Chief Judge Rubén Castillo

MEMORANDUM OPINION AND ORDER

Plaintiffs Winifred J. Daugherty and Gloria Jackson, individually and as representatives of a class of participants and beneficiaries of the University of Chicago Retirement Income Plan for Employees and the University of Chicago Contributory Retirement Plan ("Plaintiffs"), bring this action pursuant to the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(2) and (3), against the University of Chicago ("Defendant" or the "University"), alleging breaches of fiduciary duties. (R. 1, Compl.) Pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), Defendant moves to dismiss the complaint in its entirety for lack of standing and failure to state a claim, respectively. (R. 19, Def.'s Mot. to Dismiss.) Defendant also moves to strike Plaintiffs' jury demand pursuant to Federal Rule of Civil Procedure 12(f). (Id.) For the reasons stated below, Defendant's motion is granted in part and denied in part.

RELEVANT FACTS

Plaintiffs are participants in the University of Chicago Retirement Income Plan for Employees ("ERIP") (R. 1, Compl. ¶¶ 19-20), and bring the present suit under 29 U.S.C. § 1132(a)(2) and (3). (See, e.g., id. ¶¶ 1, 8-9, 97.) Plaintiffs do not allege they are participants in or beneficiaries of any other University pension plan. (See id. ¶¶ 19-21; R. 29, Opp'n at 6-10.) Plaintiffs, however, seek to bring this suit as a class action on behalf of all participants in and beneficiaries of ERIP and another University pension plan, the University of Chicago Contributory Retirement Plan ("CRP").¹ (R. 1, Compl. ¶¶ 1, 8, 99.) CRP differs from ERIP in that CRP is the pension plan available to faculty and staff members, whereas ERIP is available to the University's non-academic employees. (Id. ¶¶ 13, 17.)

The Plans are defined contribution, individual account, employee pension benefit plans within the meaning of 29 U.S.C. §§ 1002(2)(A) and 1002(34). (Id. ¶¶ 11, 15.) The Plans are a source of retirement income for many of the University's employees, faculty, and staff, and are funded through deferral of employee compensation, matching contributions by the University, and any appreciation on the Plans' investments. (Id. ¶¶ 13, 17.) As of December 31, 2015, ERIP had more than 23,000 individual participants and $980 million in assets, and CRP had more than 13,000 participants and $2.1 billion in assets. (Id. ¶¶ 14, 18.)

The University serves as the Plans' sponsor and administrator pursuant to 29 U.S.C. § 1002(16)(A)(i). (Id. ¶ 23.) The University has all discretionary authority necessary to administer the Plans, including the authority to: interpret the Plans' provisions; compute the amount and kind of benefits payable to participants and beneficiaries; direct the payment of the Plans' expenses from the Plans themselves; and resolve any questions relating to eligibility to participate in the Plans. (Id.) The University also has discretionary authority to select the Plans' investment options. (Id. ¶ 25.)

The Plans offer participants the choice to invest employee contributions in any of 35 investments managed by the Teachers Insurance and Annuity Association-College Retirement Equities Fund ("TIAA-CREF"), which include annuities and mutual funds. (Id. ¶¶ 26-27.) ThePlans also offer participants the choice to invest in more than 80 mutual funds managed by the Vanguard Group or Vanguard Fiduciary Trust Company (collectively, "Vanguard"). (Id. ¶¶ 26-27.) The Plans' participants may allocate their contributions to TIAA-CREF, Vanguard, or both. (Id. ¶ 28.)

PROCEDURAL HISTORY

On May 18, 2017, Plaintiffs filed a complaint under 29 U.S.C. § 1132(a)(2) and (3) alleging that Defendant breached its fiduciary duties and caused the Plans to engage in loan transactions prohibited under ERISA. (R. 1, Compl.) On May 25, 2017, Plaintiffs filed a notice of voluntary dismissal of then-plaintiff Steven Millard, and the Court soon thereafter dismissed Steven Millard from the case, without prejudice. (R. 5; R. 6.)

Count I of the complaint claims that Defendant breached its fiduciary duties of loyalty and prudence by selecting and retaining investment options in the Plans that caused them and Plaintiffs to incur excessive administrative expenses. (Id. ¶¶ 104-110.) Count I also claims that Defendant breached its fiduciary duties of loyalty and prudence by failing to engage in a prudent process for evaluating and monitoring the administrative expenses charged by the Plans' investment options. (Id.) Plaintiffs more specifically allege that the TIAA Traditional Annuity,² CREF variable annuity accounts,³ and the TIAA Real Estate Account⁴ investment options incur much higher than a reasonable fee for administrative services when compared to "benchmark data" for administrative costs. (Id. ¶¶ 48-49; see also id. ¶¶ 33-34, 36-40.) Plaintiffs also allege that the Plans offered participants only the Vanguard investment options available to smallindividual investors, instead of offering the Vanguard investment options that are available to large, institutional investors and incur less administrative expenses. (Id. ¶¶ 41-47.) In addition, Plaintiffs allege that the Plans' offering of a "dizzying array" of 35 TIAA-CREF and more than 80 Vanguard investment options is evidence of a flawed fiduciary decision-making process. (Id. ¶ 7.)

Counts II and III claim Defendant breached its fiduciary duties of loyalty and prudence by failing to monitor, evaluate, and replace as investment options the CREF Stock Account⁵ and the TIAA Real Estate Account due to their underperformance and excessive administrative expenses. (Id. ¶¶ 112-15, 117-19.) Plaintiffs claim the CREF Stock Account has underperformed for years and continues to underperform compared to benchmarks and other investment options available to the Plans. (Id. ¶¶ 52, 56-62.) Defendant allegedly failed to undertake any analysis concerning the CREF Stock Account's performance or adequately monitor the fund, thereby ignoring the CREF Stock Account's underperformance. (Id. ¶¶ 54-55.) Had Defendant properly monitored the CREF Stock Account, Plaintiffs allege, it would have removed the CREF Stock Account as an investment option and avoided losses to the Plans' participants. (Id. ¶¶ 63-65.) With respect to the TIAA Real Estate Account, Plaintiffs claim that it has far higher administrative fees than is reasonable, has historically underperformed, and continues to underperform compared to alternative real estate investment options. (Id. ¶¶ 66-75.) Defendant allegedly failed to monitor this investment option and replace it to avoid losses to the Plans' participants, despite continued underperformance and a higher administrative cost compared to alternative investment options. (Id. ¶¶ 76-77.)

Counts IV and V allege that Defendant breached its fiduciary duty of loyalty and engaged in a transaction prohibited under ERISA by offering through the Plans an illegal TIAA-administered loan program. (Id. ¶¶ 121-26, 128-33.) Plaintiffs allege that, in a typical pension plan loan program, a pension plan participant will borrow money from his or her own account investments which is accomplished through a liquidation of his or her investments to obtain the loan amount. (Id. ¶¶ 80-81.) Any interest that the participant pays towards the loan is credited to the participant's account, such that the participant himself or herself will earn any interest charged on the loan. (Id. ¶¶ 81, 83.) TIAA's loan program, on the other hand, requires a plan participant to borrow from the TIAA fund's general account and not the plan participant's individual account. (Id. ¶ 84.) TIAA earns any interest paid on the loan instead of the plan participant's individual account. (Id. ¶ 86.) Plaintiffs do not allege that they took out a loan under this program. (See R. 29, Opp'n at 9.) Plaintiffs allege, however, that Defendant's approval and acceptance of the TIAA loan program as an offering in the Plans is demonstrative of Defendant's flawed fiduciary decision-making process. (R. 1, Compl. ¶¶ 7, 89.)

On June 8, 2017, Defendant filed a motion to dismiss the complaint in its entirety, on jurisdictional grounds and for failure to state a claim. (R. 19, Def.'s Mot. to Dismiss.) Defendant argues that Plaintiffs lack Article III standing to pursue any claims related to CRP because they have not alleged that they are participants in CRP. (R. 22, Am. Mem. at 9-10.) Defendant also challenges Plaintiffs' standing to pursue Counts IV and V because those claims are based on the TIAA loan program, and Plaintiffs fail to allege they ever took out a loan under the TIAA loan program. (Id. at 10-11.) Defendant then argues that all of Plaintiffs' claims fail because they do not plausibly allege any breach of ERISA's fiduciary duties of prudence or loyalty, nor do they plausibly claim that Defendant caused prohibited transactions to occur. (Id. at 11-25.) Finally,Defendant argues that the Court should strike Plaintiffs' jury demand because ERISA does not provide a right to a trial by jury. (Id. at 25.)

In response, Plaintiffs argue they have standing to pursue claims related to CRP because ERIP and CRP are similar, and the fact that Plaintiffs are not CRP participants might effect class certification, but not Article III standing. (R. 29, Opp'n at 7-9.) Plaintiffs argue they have standing to pursue their TIAA loan program claims because ERISA creates a private right of action to redress an ERISA fiduciary's statutory violations. (Id. at 9-10.) Plaintiffs then dispute Defendant's characterization of the TIAA loan program and argue that it is a patent violation of ERISA. (Id. at 10-13.) In response to Defendant's claims that Plaintiffs have not alleged any breach of...