Federal District Court Holds Fiduciaries Liable for Breach for Excessive Fees and Imprudent Investments
The U.S. Federal District Court for the Western District of Missouri determined that plan fiduciaries breached their fiduciary duties by failing to monitor recordkeeping costs, negotiate rebates, and prudently select and retain investment options. This is a federal district court decision and it differs from positions taken by some federal circuit courts which are precedential, but whether this decision is judicial activism or a new trend will need to play out over time. It is a case worth noting in light of the U.S. Department of Labor’s recent initiatives on plan fee disclosure whose compliance deadlines are rapidly approaching. The court considered the revenue sharing agreement with Fidelity for recordkeeping services, as assets of the plan grew, revenue sharing with Fidelity would also grow—even if Fidelity provided no additional services. If assets declined, Fidelity would request a payment to make up the loss of revenue. The fiduciaries never calculated the… Continue Reading
Bank Is Not Fiduciary and Prohibited Transaction Does Not Occur When Sweeping Funds from Employer Bank Account
The U.S. Federal District Court for the Southern District of Texas dismissed claims that a bank was acting as an ERISA fiduciary when it swept the corporate bank account of a financially distressed employer pursuant to its contract with the employer. The employer had failed to timely remit withheld employee deductions for the health plan to the third party insurer. When the employer entered bankruptcy, the insurer sued the bank under ERISA for the amount of the withheld deductions. The insurer claimed that the bank was a fiduciary and had engaged in a prohibited transaction. The court found that the bank was not a fiduciary because it did not have discretionary control over plan assets nor discretion over administration of the plan. The court further found that the bank did not engage in a prohibited transaction because it did not engage in any transactions with the plan. The transaction in… Continue Reading
The U.S. Federal District Court for the Southern District of Texas dismissed stock drop claims brought against the plan fiduciary for BP’s 401(k) plans. The plans contained employer stock funds that allowed investment in BP American Depository Shares (ADSs). The ADSs incurred a 55 percent drop after the Deepwater Horizon incident in the Gulf of Mexico. The plaintiffs claimed that plan fiduciaries should have divested BP stock because of flaws in BP’s safety programs. In dismissing all claims, the court determined that plaintiffs failed to show that the plan fiduciaries had access to nonpublic information regarding the safety programs, and that the presumption of prudence applied. In re BP p.l.c. ERISA Litigation, S.D. Tex., No. 10-md-2185 (Mar. 30, 2012).
11th Circuit Rules that Modification of a Pension Plan’s Social Security Offset Did Not Violate the Anti-Cut Back Rule
On March 23, 2012, the Federal Court of Appeals for the Eleventh Circuit held that Delta Airlines Inc. did not violate ERISA’s anti-cutback rule when it amended its pension plan to change the formula for calculating a Social Security benefit offset for plan participants who were under age 52 (the plan’s earliest retirement age). The plan’s benefit formula, which was in dispute, “integrated” with Social Security by providing an offset to the plan’s accrued benefit once a participant reached age 52. In ruling that the amendment did not violate the anti-cutback rule, the court held that the amendment did not reduce the participant’s accrued retirement benefit (the accrued retirement benefits had been frozen earlier), but altered how the plan would calculate the Social Security offset for that accrued benefit. Since the amendment only altered the offset formula for participants who were not yet 52, application of the formula depended on… Continue Reading