PLANADVISER - May/June 2019 - 49

also proved to be among the most convoluted. Prior to
the parties' agreement to settle the matter, in the most
recent appellate ruling, the 8th Circuit Court found that
the District Court-when making its own second ruling-
mistook a general directive to reconsider key elements in
the case in an open-minded manner as, instead, definitive
instructions on how to measure plan losses. As a result, the
Appeals Court ruled, the District Court had inappropriately
entered its second judgment in favor of the ABB fiduciaries,
despite finding that they did breach their duties.
That is, in the rejected decision, the District Court had
found that fiduciaries to the ABB 401(k) plan indeed abused
their discretion when making an investment lineup change,
but because the plaintiffs had failed to calculate damages
using the type of specific approach the District Court
mistakenly thought the Appeals Court expected, it entered
a judgment that benefitted the fiduciaries.
At the core of this complicated appeals and remand
process was the original 2012 decision, where the District
Court awarded the first monetary settlement to the ABB
plan participants. That decision was quickly appealed to
the 8th Circuit by the plaintiffs, who, despite their partial
success, felt that some of their claims had been wrongly
dismissed. The eventual petition to the Supreme Court
came after the 8th Circuit vacated parts of the original decision-thereby
somewhat tempering the damages assessed
against ABB and Fidelity.
Vanderbilt Settlement Reached
Vanderbilt University also recently settled an Employee
Retirement Income Security Act (ERISA) fiduciary breach
lawsuit, this one targeting the firm's 403(b) plan. The settlement
agreement includes some novel details pertaining to
the treatment of plan data.
A year ago January, the U.S. District Court for the District
of Tennessee dismissed some claims, but moved forward on
others pertaining to the Vanderbilt University Retirement
Plan and the Vanderbilt University New Faculty Plan.
The court dismissed all claims for breach of duty of
loyalty, finding the plaintiffs did not allege sufficient facts to
show that the defendants engaged in transactions involving
self-dealing or material conflicts of interest. But the decision
also ruled that the plaintiffs had sufficiently alleged that
defendants' failure to secure competitive bids for certain
plan services under these circumstances was not consistent
with what a prudent man or woman acting in a like capacity
would have done-a potential ERISA violation.
The Vanderbilt settlement agreement's focus on how
plan data will be treated moving forward is new and significant
relative to other 403(b) plan decisions and settlements.
In short, the agreement stipulates that plan data will not be
used by providers such as recordkeepers or asset managers
for the purposes of cross-selling unrelated products or
services to plan participants. During its next formal recordkeeping
review, Vanderbilt is required to contractually
prohibit such data-based cross-selling.
Advisory Firm Avoids Class Action
The advisory firm of Slocum & Associates will not face
class-action claims and has prevailed on some summary
judgment arguments, but a recent district court ruling
allows certain individual claims to proceed.
According to the U.S. District Court for the District of
Colorado, the plaintiffs " failed to undertake adequate steps
to represent the interests of absent potential plaintiffs and,
thus, bind them through this litigation, as required by the
2nd Circuit's middle ground approach in Coan [v. Kaufman]. "
As a consequence, the court held that plaintiffs may recover
their individual plan losses allegedly attributable to Slocum
but not such losses for the plan as a whole.
Court Rejects Self-Dealing Defense
The 9th U.S. Circuit Court of Appeals has affirmed a lower
court's ruling that City National Corp. engaged in selfdealing
in administering its own retirement plan; the
Appeals Court also affirmed most of the damages City
National is required to pay.
A federal judge in the U.S. District Court for the Central
District of California found that City National Corp. violated
employee retirement laws when it chose its own staff
to administer its employee retirement plan in exchange
for millions of dollars of unchecked, unreasonably high
compensation. The court granted the Department of Labor
(DOL)'s motion for summary judgment on damages. Specifically,
in an order dated February 8, 2017, the District Court
awarded $7,367,382 in damages.
City National appealed the grant of summary judgment
that found it liable, under Employee Retirement Income
Security Act (ERISA) Section 406(b), for self-dealing and
also the amount of damages and prejudgment interest. As
stated in the Appellate Court opinion, the company " [did]
not contest that it engaged in what is typically prohibited
self-dealing by setting and approving its own fees from
plan assets for serving as its own recordkeeper. Instead
[it] contend[ed] that this conduct is exempted under ERISA
Section 408(c)(2) as 'reasonable compensation' for services
provided by a fiduciary such as recordkeeping services. "
Revenue-Sharing Fees Questioned
A complaint recently filed in the U.S. District Court for the
Eastern District of Pennsylvania accuses BTG International
Inc. of breaching the Employee Retirement Income Security
Act (ERISA) in the operation of a profit-sharing 401(k) plan.
The plaintiff, seeking class-action status on behalf of
similarly situated participants in the BTG International
Profit Sharing 40l(k) Plan, alleges company officials allowed
the plan's recordkeeper, John Hancock, to receive excessive
and unreasonable compensation through a variety of undisclosed
channels. In addition to BTG, the plan's named fiduciaries-three
top executives-were cited with allegations
in the complaint.
The text of the complaint details alleged fiduciary
breaches relating to " direct hard-dollar fees paid by the plan
to John Hancock. " -PA
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