3rd Cir.: John Hancock Not ERISA Fiduciary In Case Alleging Excessive 401(k) Plan Fees


In a move that will have retirement plan service providers breathing sighs of relief, the U.S. Court of Appeals for the Third Circuit ruled that John Hancock Life Insurance Co. isn't an ERISA fiduciary for purposes of a lawsuit accusing it of charging excessive fees to participants in two Section 401(k) plans (Santomenno v. John Hancock Life Ins. Co.,2014 BL 267210, 3d Cir., No. 13-3467, 9/26/14).         

In the court's Sept. 26 opinion—which largely followed the U.S. Court of Appeals for the Seventh Circuit's decision in Leimkuehler v. Am. United Life Ins. Co., 713 F.3d 905, 56 EBC 2407 (7th Cir. 2013)—Judge D. Michael Fisher concluded that John Hancock's practice of creating and managing a “Big Menu” of plan investment options that trustees could choose from didn't give rise to fiduciary status under the Employee Retirement Income Security Act.         

In so ruling, the court emphasized that John Hancock's status as a functional fiduciary depended on the specific fiduciary breaches claimed by the participants.         

Because each of the participants' claims challenged the company's allegedly excessive fees, the court said that “the question in this case is not whether John Hancock acted as a fiduciary to the Plans at some point and in some manner and then charged an excessive fee for that fiduciary service.” Rather, the court said, “the question is whether John Hancock acted as a fiduciary to the Plans with respect to the fees that it set.”         

The court also rejected an argument raised by the Department of Labor in an amicus brief. The DOL contended that, even if John Hancock wasn't a fiduciary under ERISA Section 3(21)(A)(i)—which defines a fiduciary as anyone who exercises discretionary authority over the management or disposition of plan assets—it was still a fiduciary under   ERISA Section 3(21)(A)(iii), which defines fiduciary as including anyone who has discretionary authority over plan administration.    

Status Depends on Claims         

Before squarely addressing John Hancock's fiduciary status, the Third Circuit said it was important to “clarify precisely what Participants claim in this case.”         

That's because an entity is a functional fiduciary under ERISA only if it was acting as a fiduciary when taking the actions challenged in the complaint, the court said.

On that point, the court said that each of the participants' claims “alleges the charging of excessive fees in breach of fiduciary duty.” Therefore, the court found that the relevant inquiry was “whether John Hancock acted as a fiduciary to the Plans with respect to the fees that it set.” 

Excerpted from a story that ran in Pension & Benefits Daily (9/26/2014).