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High Court Won't Consider Fiduciary Status Of Profit-Sharing Plan RecordKeeper

Tuesday, February 25, 2014

Feb. 24 --The U.S. Supreme Court won't review an appellate court decision holding that a profit-sharing plan's recordkeeper didn't act as a plan fiduciary in selecting mutual funds for the plan's investment lineup for purposes of a challenge to the recordkeeper's receipt of revenue-sharing fees (Leimkuehler v. Am. United Life Ins. Co., U.S., No. 13-536, cert. denied 2/24/14).  

In April 2013, the U.S. Court of Appeals for the Seventh Circuit upheld the revenue-sharing practices of American United Life Insurance Co. (AUL) against a challenge by the trustee of a profit-sharing plan that hired AUL to provide recordkeeping and administrative services (74 PBD, 4/17/13; 40 BPR 1002, 4/23/13; 56 EBC 2407).

The trustee alleged that AUL breached fiduciary duties under the Employee Retirement Income Security Act by receiving and failing to disclose that it received revenue-sharing payments from mutual fund providers. Under the theory advanced by the trustee and the Department of Labor, AUL was a functional fiduciary under ERISA Section 3(21)(A)(i),because it had unilateral authority to select the mutual funds in which plan assets could be invested (131 PBD, 7/10/12; 39 BPR 1376, 7/17/12).

Fiduciary Status

The Seventh Circuit rejected the idea that AUL's selection of mutual funds rendered it an ERISA fiduciary for purposes of the trustee's claims.

According to the Seventh Circuit, AUL's control over plan assets imposed fiduciary status on AUL only if the trustee's claims for breach of fiduciary duty arose from AUL's handling of those assets.

Because the trustee's fiduciary breach claim focused on the revenue-sharing arrangement--and not on any alleged mismanagement of plan assets--AUL wasn't a fiduciary for purposes of those claims, the Seventh Circuit determined.

In its petition for Supreme Court review, the trustee asked the high court whether the Seventh Circuit erred by holding, in conflict with the decisions of six other circuits, that a person who exercises some authority or control over the assets of a plan is a fiduciary with respect to that plan only if he is alleged to have “mismanaged” the plan's assets.

The high court's announcement came Feb. 24.


Text of the Seventh Circuit's opinion is at http://www.bloomberglaw.com/public/document/Leimkuehler_v_American_United_Life_Ins_Co_713_F3d_905_56_EBC_2407/1.

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