The Second Circuit recently held that in order to state a claim for a prohibited transaction pursuant to ERISA section 406(a)(1)(C), it is not enough to allege that a fiduciary caused the plan to compensate a service provider for its services. Instead, “the complaint must plausibly allege that the services were unnecessary or involved unreasonable compensation.” Cunningham v. Cornell Univ., 2023 WL 7504142 (2d Cir. Nov. 14, 2023). Separately, the Second Circuit affirmed summary judgment for the defendants in connection with the plaintiffs’ fiduciary breach claims that were premised on allegations of excessive recordkeeping fees, underperforming investment funds, and the defendants’ failure to transition to lower-cost share classes of certain mutual funds.
Prohibited Transaction
District Court Replaces Plan Trustees With Independent Fiduciary
By Joseph Clark & Neil V. Shah on
In Su v. Fensler, No. 22-cv-01030, 2023 WL 5152640 (N.D. Ill. Aug. 10, 2023), the court granted the Department of Labor’s motion for a preliminary injunction to replace with an independent fiduciary the trustees of the United Employee Benefit Fund, who are accused of breaching their fiduciary duties by using Fund assets to engage…
401(k) Plan Participant Cannot Pursue Claims on Behalf of Plans in Which She Did Not Participate
By Tulio Chirinos on
A federal district court in Ohio concluded that a 401(k) plan participant could assert fiduciary breach and prohibited transaction claims only on behalf of the plan in which she participated, and not on behalf of other plans. In this case, the plaintiff was a participant in Andrus Wagstaff, PC’s 401(k) plan, and she alleged that…
Third Circuit Resuscitates Claims Against University 403(b) Plan Fiduciaries
Over the past several years, the ERISA plaintiffs’ bar has targeted university-sponsored 403(b) plans, arguing that the plan fiduciaries breached their fiduciary duties and engaged in prohibited transactions in connection with offering certain investment options and the administrative fees associated with such plans. Among other things, they have argued that the plan fiduciaries offered too…
No Standing To Pursue Fiduciary-Breach Claim Where Plan Became Overfunded During Litigation
By Steven A. Sutro on
The Eighth Circuit held that defined benefit pension plan participants who alleged breach of fiduciary duty and prohibited transaction claims under ERISA lacked standing to assert their claims because, during the course of the litigation, the plan became overfunded. Plaintiffs brought suit after the plan lost $1.1 billion, which plaintiffs claimed arose from imprudent investments…
U.S. DOL Proposes Delay of Conflict of Interest Rule and Related Exemptions
By Benjamin Saper, Russell Hirschhorn & Seth Safra on
On March 1, 2017, the U.S. Department of Labor proposed a 60-day delay of the conflict of interest rule and related exemptions (currently set to be applicable on April 10, 2017). The Department opened two comment periods related to the rule:
- A 15-day comment period (ending March 17, 2017) on whether enforcement of the rule
…
U.S. DOL To Issue Final Rule and Exemptions on Fiduciary Standards
Today, the U.S. Department of Labor will release its highly-anticipated Final Rule and Exemptions addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a “fiduciary” under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. According to a Fact Sheet released in advance of the new rule’s publication, the “DOL has streamlined and simplified the rule to minimize the compliance burden and ensure ongoing access to advice, while maintaining an enforceable best interest standard that protects savers.” According to the Fact Sheet:
- The rule requires more retirement investment advisers to put their client’s best interest first, by expanding the types of retirement advice covered by fiduciary protections
- The rule clarifies what does and does not constitute fiduciary advice
- The exemptions will allow firms to accept common types of compensation – like commissions and revenue sharing payments – if they commit to putting their client’s best interest first
- The rule and exemptions ensure that advisers are held accountable to their clients if they provide advice that is not in their clients’ best interest
U.S. District Court Rules that Float Income Earned by Fidelity Is Not a Plan Asset
By Robert Rachal on
Four class actions were consolidated in the U.S. District Court for the District of Massachusetts challenging whether float income earned on monies pending a transaction was a “plan asset.” In re Fidelity ERISA Float Income, No. 13-10222, 2015 WL 1061497 (D. Mass. March 11, 2015). Plaintiffs argued that if float was a plan asset, then Fidelity breached its fiduciary duties and committed a prohibited transaction by keeping this float income for its own benefit. Applying ordinary notions of property rights, the District Court held that float income was not a plan asset.