Wilcox v. Georgetown Univ.

1

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, the GEORGETOWN UNIVERSITY VOLUNTARY CONTRIBUTION RETIREMENT PLAN, et al., Plaintiffs, v. GEORGETOWN UNIVERSITY, et al., Defendants.

Civil Action No. 18-0422 (ABJ)

United States District Court, District of Columbia

March 31, 2023

MEMORANDUM OPINION

AMY BERMAN JACKSON, UNITED STATES DISTRICT JUDGE

On February 23, 2018, plaintiffs Darrell Wilcox and Michael McGuire, individually and as representatives of a class of participants and beneficiaries of the Georgetown University Defined Contribution Retirement Plan (“DC Plan”) and the Georgetown University Voluntary Contribution Retirement Plan (“Voluntary Plan”) (collectively “Plans”), filed a complaint against Georgetown University, and the Senior Vice President and Chief Administrative Officer of the University (collectively “Georgetown”) alleging a breach of their fiduciary duties under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (“ERISA”). Compl. [Dkt. # 1] ¶¶ 1 25-26.^[1] Plaintiffs, who are employees of the University, claimed that defendants failed “to evaluate and monitor the Plans' expenses” adequately and “caused the Plans to pay unreasonable and excessive fees for investment and administrative services.” Compl. ¶ 4.

The case had a complicated procedural history, and approximately four years after they originally brought suit, plaintiffs moved for leave to file an amended complaint. Pls.' Mot. Seeking Leave to File Pls.' First Am. Compl. [Dkt. # 58], Mem. of Law in Supp. of Pls.' Mot. Seeking Leave to File Pls.' First Am. Compl. [Dkt. # 58-1] (“Pls.' Mot.”). Plaintiffs' motion includes their proposed amended complaint. Proposed First Am. Compl., Ex. A to Pls.' Mot. [Dkt. # 58-2] (“Proposed Am. Compl.”). The motion is fully briefed.^[2]

For the reasons to be set forth in more detail below, plaintiffs' motion for leave to file an amended complaint will be DENIED. The case appears to be a lawsuit in search of a theory, and notwithstanding its length, the proposed amended complaint does not add much to the original pleading that was dismissed. Plaintiffs identify ways in which plan management could be different, or even improved, but they have not alleged facts to support a plausible inference that the defendants have failed as fiduciaries.

BACKGROUND

Georgetown offers its eligible employees the opportunity to participate in the Georgetown University Defined Contribution Retirement Plan and the Georgetown University Voluntary Contribution Retirement Plan, both of which are “defined contribution, individual account, employee pension benefit plans” governed by ERISA.^[3] Proposed Am. Compl. ¶¶ 35, 37; Compl. ¶¶ 16, 18.

In a defined contribution plan, the participant's retirement benefit is determined based on the performance of the assets they choose, less any fees and expenses. Proposed Am. Compl ¶ 37; Compl. ¶ 18; see also LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248, 250 n.1 (2008) (explaining difference between defined contribution plans, where the retirement benefit is based on investment performance, and defined benefit plans, where a participant's retirement benefit is fixed based on factors like tenure and compensation). The individual accounts here are funded by the employees' deferred compensation and matching contributions from Georgetown. Proposed Am. Compl. ¶ 37; Compl. ¶ 18.

The Plans offer participants a range of investments options to choose from, and participants make individual decisions as to how their funds are invested. Proposed Am. Compl. ¶ 37; Compl. ¶ 18.

Georgetown employees could choose to invest in fixed and variable annuities^[4] through the Teachers Insurance and Annuity Association (“TIAA”), and mutual fund investment options managed by TIAA, Vanguard, and Fidelity. Proposed Am. Compl. ¶ 47; Compl. ¶¶ 28-29.^[5]

Plaintiffs' original complaint consisted of two counts. Count I alleged that Georgetown breached its duty of prudence^[6] by offering investment options in a manner that resulted in unreasonable administrative and recordkeeping fees. Compl. ¶¶ 119-25. Plaintiffs took the position that defendants' selection of three recordkeepers - TIAA, Vanguard, and Fidelity -created needless additional expense and complexity. Compl. ¶ 6. Each of the recordkeepers, plaintiffs alleged,

supplied the Plans with a separate menu of investment choices including mutual fund share classes that charged higher fees than (i) other less expensive investment alternatives that offered the same investment strategies or (ii) less expensive share classes of the exact same investment fund, or (iii) both.

Compl. ¶ 6. Moreover, “[f]ees for administrative services were charged and paid to these three companies as a percentage of the overall expenses paid for investing in the various investment options offered within the Plans (including expensive choices and/or share classes),” resulting in, according to plaintiffs, their having to pay “asset-based fees for administrative services, which continued to increase as the value of their accounts increased through additional contributions and investment returns even though no additional services were being provided.” Compl. ¶ 7. Plaintiffs alleged that if recordkeeping services were performed by a single entity, as opposed to three, they could have been provided across all three investment platforms for “the reasonable amount of a fixed fee . . . in the range of $35.” Pls.' Mem. of Law in Opp. to Defs.' Mot. to Dismiss [Dkt. # 24] at 23, citing Compl. ¶¶ 53-54. Plaintiffs also posited that “[t]he sheer volume of three hundred total investment choices for retirement investors,” which were offered among the three recordkeepers, “indicate[d] that [d]efendants failed properly to monitor and evaluate the historical performance and expense of each of these funds, compare that historical performance and expense to a peer group of funds and/or even compare the three segments against one another.” Compl. ¶¶ 9-10.

Count II alleged that Georgetown breached its duty of prudence in the way it managed the selection and retention of the Plans' investment options. Compl. ¶¶ 125-37. Plaintiffs found fault with a number of specific investment options:

▪ Vanguard investment options:

Plaintiffs alleged that Georgetown “used more expensive funds . . . than investments that were available to the Plans,” Compl. ¶ 131; see Dismissal Op. at 6, and they challenged “the particular share classes of Vanguard funds that were available to [p]articipants.” Dismissal Op. at 6.

▪ TIAA investment options:

TIAA Traditional Annuity: The TIAA Traditional Annuity was available to participants through either the Defined Contribution Plan or the Voluntary Plan. If a participant invested through the Defined Contribution Plan, that investment would typically earn greater interest than the same investment in the Voluntary Plan. But the Defined Contribution Plan prohibited participants from withdrawing funds until the end of their employment with Georgetown, or alternatively allowed them to re-direct their funds in ten annual installments. Upon departure from employment, a participant could leave the funds invested in the TIAA Traditional Annuity and receive a monthly pension payment whenever that person qualified for it, or withdraw the funds immediately and pay a 2.5% surrender charge. The Voluntary Plan allowed participants to withdraw funds at any time without penalty. Plaintiffs alleged that the TIAA Traditional Annuity's restrictions on re-directing investment funds into other investment options - except in ten annual installments - and the imposition of the 2.5% surrender charge “violate[d] ERISA's prohibition on the imposition of a penalty for early termination of a contract.” Dismissal Op. at 7; see Compl. ¶ 134.

College Retirement Equities Fund (“CREF”) Stock Account: Plaintiffs alleged that defendants “selected and retained the CREF Stock Account” - a variable-annuity investment fund, Dismissal Op. at 8 - “despite its excessive cost and historical underperformance compared to both passively managed investments and actively managed investments with similar underlying asset allocations.” Compl. ¶ 132 (emphasis in original).

TIAA Real Estate Account: “The TIAA Real Estate Account is a variable annuity account that seeks favorable long-term returns primarily through rental income and appreciation of real estate and real estate-related investments.” Dismissal Op. at 10 (internal quotation marks omitted) (referencing and linking to TIAA Real Estate Account Prospectus). Plaintiffs alleged that “[d]efendants selected and retained the TIAA Real Estate Account for the real estate investment in the Plans despite its excessive fees and historical underperformance compared to lower-cost real estate investments.” Compl. ¶ 133.

Plaintiff Wilcox was alleged to have “invested in the TIAA Traditional Annuity, the CREF Bond Account . . ., and eleven of the TIAA mutual funds.” Compl. ¶ 20. Plaintiff McGuire was alleged to have “invested in the CREF Stock Account, the CREF Equity Index Account, the TIAA Real Estate Account, the CREF Inflation-Linked Bond Fund Account, the CREF Bond Market Account[,] and the TIAA-CREF Growth and Income Account.” Compl. ¶ 21.

Motion to Dismiss

On April 23, 2018, defendants moved to dismiss plaintiffs' complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). Defs.' Mot. to Dismiss [Dkt. # 18], Mem. of Law in Supp. of Defs.' Mot. to Dismiss Pls.' Compl. [Dkt. # 18-1] (“Defs.' Mot. to Dismiss”) see Pls.' Mem. of Law in Opp. to Defs.' Mot to Dismiss [Dkt. # 24];...