The Changing Court View on Fiduciary Status

As a student of law and in practice over 15 years, I understand that litigation takes time and legal opinions also change over time.

Over 160 years ago, the Supreme Court claimed an African American did not have the right to sue in Federal Court in the dreaded Dred Scott decision. The Civil War and the Constitutional amendments changed that. 25 years ago, if people heard that homosexual couples wanted the right to be married, they would have laughed.  Laws and legal opinions changed over times.

The same can be said about retirement plan/ERISA litigation. When there was class action suits against plan sponsors and providers over fees and revenue sharing 12-15 years ago, plan participants would lose. Thanks to a down stock market and creative arguments by ERISA counsel, the tide against plan sponsors and providers are changing.

As of now, plan providers who offer fund menu lineups have typically won lawsuits where the participants’ arguments were that the provider was a plan fiduciary (when contractually, it said otherwise). Well, that may be changing too.

In Connecticut, a Federal District Court ruled that ING is a plan fiduciary because it had the discretionary authority to substitute funds on their fund menus and that the revenue sharing they received from such investments was a prohibited transaction.  Whether ING exercised the discretionary authority or not was irrelevant for the Court. This decision may be an aberration to current and recent cases where providers in the capacity aren’t held to be a fiduciary, but this maybe a new view that might be adopted by other Federal Courts in other jurisdictions. Time will tell whether Healthcare Strategies v. ING Life Insurance and Annuity Co. will have any teeth in the future as it may or may not go to trial.

Regardless, plan sponsors need to be more vigilant in the selection of plan providers and selection of plan investments.

This entry was posted in 401(k) Plans, Retirement Plans. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *