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Eleventh Circuit Holds No Fiduciary Breach in ESOP Stock Drop Case

The U.S. Court of Appeals for the Eleventh Circuit affirmed dismissal of the claim by plan participants that The Home Depot had violated its fiduciary duties with respect to the ESOP by continuing to offer employer stock as an investment option after certain accounting adjustments caused earnings to be restated and the stock price to fall. Although ultimately the Eleventh Circuit upheld the district court’s decision, it overruled the district court on several points. First, the district court had determined that the plaintiffs’ prudence claim was really a diversification claim in disguise (ESOPs are exempt from the diversification requirement). Alternately, the district court had held that even if the claim were properly a prudence claim, the claim would fail because the participants did not allege that The Home Depot was on “the brink of financial collapse.” The Eleventh Circuit determined that this was a prudence claim, not a diversification claim.… Continue Reading

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

NY High Court Holds Fiduciary Insurance Coverage Doesn’t Cover Claims Against Employer as Settlor

The Court of Appeals of New York, New York’s highest court, dismissed the claim IBM made against the carrier of its excess insurance coverage (an excess policy that covered claims in excess of its ERISA fiduciary insurance policy). A class of participants had sued IBM claiming that amendments IBM made to its pension plan were age discriminatory. Participants filed no ERISA fiduciary claims. IBM settled for $319 million. After exhausting the $25 million limit in its underlying policy, IBM turned to its excess policy with Federal which was a “follow form” policy that conformed to the terms and endorsements of the underlying Zurich Policy. The excess policy covered “any breach of the responsibilities, obligations or duties by an Insured which are imposed upon a fiduciary of [a plan by ERISA, other U.S. law or] ERISA equivalent laws in any jurisdiction, [ ] any other matter claimed against an Insured solely… Continue Reading

Fourth Circuit Remands Fiduciary Breach Case to District Court to Determine Damages

The United States Court of Appeals for the Fourth Circuit recently remanded a case to the district court, after the district court found that the trustees of a multiemployer pension plan were liable for a breach of fiduciary duty to investigate investment alternatives. On appeal, the trustees argued that the district court erred in holding them liable for a breach of fiduciary duty because, although the court found a breach of the duty to investigate, it made no finding that the trustees held imprudent investments, and ERISA fiduciaries are not liable for damages for a fiduciary breach in the absence of losses arising from the breach. The Fourth Circuit agreed, ruling that simply finding a failure to investigate or diversify does not automatically equate to causation of loss and liability. On remand, the district court must determine whether the trustees’ failure to investigate alternatives caused them to make imprudent investments… Continue Reading

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