“You can’t always get what you want…” — and, in Some Cases, You Can’t Get a Court to Declare that the Defendant is an ERISA Fiduciary

To avail themselves of the protections of the Employee Retirement Income Security Act (“ERISA”), plaintiffs must prove, as a threshold matter, that the defendant was a fiduciary. If plaintiffs are successful in meeting their burden, the fiduciary is subject to the mandates of ERISA, which requires it to perform certain duties (the highest duties known to law) vis-à-vis a pension plan’s participants and beneficiaries. Simultaneously, ERISA’s prohibited transaction provisions (describing what a fiduciary cannot do) are triggered.

Pursuant to ERISA, a fiduciary can be a named fiduciary by an employer sponsoring the plan. Alternatively, one can become a fiduciary simply by exercising (or having) any discretionary authority or control over a plan’s administration or assets. ERISA Section 3(21).

Recently, in Malone v. Teachers Ins. & Annuity Ass’n of Am., 2017 U.S. Dist. LEXIS 32308 (S.D.N.Y., Mar. 7, 2017), plaintiff asked the court to determine that defendant Teachers Insurance and Annuity Association of America (“TIAA”) was a fiduciary in its capacity as record keeper. On defendant’s motion to dismiss, the court found that TIAA was not a fiduciary.

Per the complaint in Malone, TIAA, as part of its investment services to the plan, had five-year annuity contracts which provided in part that the investment fees charged would offset any record keeping fees so long as the record keeper was TIAA (a practice knoCakewn in the industry as “revenue sharing”).

At the time these contracts were signed, this revenue sharing arrangement was not disclosed to the plan and, according to plaintiffs, this failure to disclose constituted a breach of fiduciary duty under ERISA. The primary issue for the Court was whether TIAA “exercised discretion” over the plan’s administration or assets thus making it a fiduciary. The Court ultimately rejected plaintiff’s arguments after considering the following facts:

  • TIAA locked in the plan to a five-year contract;
  • TIAA failed to disclose revenue sharing at signing of the contract;
  • Plaintiff did not plead that the contracts were not negotiated at arm’s length;
  • TIAA had no prior relationship with the plan;
  • Fees paid from plan assets do not give the collector, in and of itself, fiduciary status;
  • TIAA periodically collected fees; and
  • TIAA adhered to a specific contract term. 

Best practice Tips: Despite the ruling in Malone in favor of the Defendant, there is always a risk that one could be deemed a fiduciary. Thus, it is important to not get caught by surprise. One should review all relevant plan documents and outline every party involved in servicing the plan. Aside from named fiduciaries, determine at an early stage who has the critical “discretionary authority” in order to identify other fiduciaries and to ascertain if they are meeting their duties.

– Jose M. Jara

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About josejara2016

Jose is an attorney with over 20 years of ERISA and employee benefits law experience. In the field of employee benefits law, he provides innovative solutions to his clients by incorporating into his guidance a business and practical perspective. Jose has extensive experience in: - Guiding plan sponsors and fiduciaries through U.S. Department of Labor (DOL), Employee Benefits Security Administration (EBSA) – audits and investigations; and Office of the Solicitor – lawsuits. - Defending fiduciaries and boards of directors against ERISA class action litigation alleging breach of fiduciary duty (imprudent investments, employer stock, cash balance, excessive fees, delinquent employee contributions, ESOPS) - Advising on fiduciary responsibilities, plan fees and expenses, plan asset regulations, and ERISA prohibited transactions and exemptions - Correcting retirement plan errors under: the Internal Revenue Service, Employee Plans Compliance Resolution System (EPCRS), fiduciary violations under the DOL Voluntary Fiduciary Correction Program (VFCP), Annual Reporting failures under the DOL Delinquent Filer Voluntary Compliance Program (DFVCP) - Handle Withdrawal Liability Arbitrations and advise on Controlled Group and Affiliated Service Group, Plan Funding, and PBGC issues In the professional liability insurance arena, Jose advises on D&O, Fiduciary, and EPL insurance issues. As a former claims director at a major insurance carrier, he fully understands the triad relationship between the law firm, the client, and the insurance carrier and in litigation matters manages the relationships to produce optimal results for the trio involved. He has also acted as monitoring counsel and coverage counsel. Jose has provided advice to underwriters on a variety of provisions of the insurance policy and taught underwriters on spotting red flags and mitigating risks. Jose’s experience extends to advising his clients on a myriad of labor and employment issues, including, but not limited to: discrimination, retaliation, wrongful termination, restrictive covenants, exempt and non-exempt employees, over-time, and sexual harassment. He has also drafted employee handbooks and executive compensation agreements. Professional Affiliations - Leake and Watts Services, Inc., President of the Board of Directors - The Center for Family Support, Member of the Board of Directors - Benjamin N. Cardozo School of Law, Chairman of the Labor & Employment Alumni Group, Member and Officer of the Executive Committee of the Cardozo Alumni Association.

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