“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

Sex Stereotyping Discrimination Claims in the Second Circuit on Hold

In Lorber v. Lew, 2017 U.S. Dist. LEXIS 21189, *14-15 (S.D.N.Y. Feb. 13, 2017), plaintiff — an openly gay IRS employee — filed suit against the former Secretary of the Treasury alleging discrimination and retaliation in violation of Title VII based on his gender.  Among other things, plaintiff alleged that he had been passed over for promotions, excluded from meetings, and given poor performance reviews for discriminatory and retaliatory reasons.  Although the Court granted the defendants’ motion to dismiss plaintiff’s hostile work environment claim, the court refused to dismiss plaintiff’s claim for discrimination under Title VII for nonconformity with male sex stereotypes.

Significantly, although plaintiff admitted (in response to the defendants’ motion to dismiss) that rulings from the Second Circuit Court of Appeals foreclose Title VII claims based exclusively on sexual orientation discrimination, the court in Lorber noted that “the Second Circuit has recently held oral argument in two cases that present the issue of whether Title VII protects against sexual orientation discrimination. See Zarda v. Altitude Express, No. 15-3775 (2d Cir. argued Jan. 5, 2017); Christiansen v. Omnicom Group, Inc., et al., No. 16-748 (2d Cir. argued Jan. 20, 2017).”  Thus, the court stayed adjudication of the plaintiff’s sex stereotyping claim pending the Second Circuit’s rulings.

While timing may not be “everything,” it certainly can make a huge difference for the parties.  In Lorber, plaintiff’s Title VII claim survived solely on the fact that the determinative legal issues are expected to be resolved shortly by the Second Circuit.

Kerman’s Korner: The Blueprint for an Unsolved Mystery

kermanskorner-01315662xae57eWhen faced with a case involving an unsolved murder, Jeremy discusses how he and his team came up with an innovative solution when there was no guidance from prior case law.  For previous episodes of Kerman’s Korner, please click here.