Bank of America Prevails in 401(k) Asset Transfer Case

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Bank of America Corp. prevailed against employees who challenged a $3 billion transfer from the company’s 401(k) plan to its cash balance defined benefit plan ( Pender v. Bank of Am. Corp. , 2017 BL 84782, W.D.N.C., No. 3:05-cv-00238-GCM, 3/17/17 ).

The employees failed to establish that BofA retained any profit as a result of the transfer, Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina held March 17, entering judgment in favor of the bank. After a weeklong trial, Mullen agreed with BofA that the plan experienced a net investment loss because it had invested more in equities during a period when equity markets were significantly outperformed by fixed-income investments. The plan’s heavy concentration in equities during this time compelled a finding that it experienced a loss, not a profit, Mullen said.

The long-running lawsuit—first filed in 2005—accused BofA of violating the Employee Retirement Income Security Act by depriving workers of the “separate account” feature of their 401(k) plan. The workers sought to recover the difference between the investment earnings they would have received in the 401(k) plan and the earnings that the company credited them with following the transfer of assets to the company’s cash balance plan.

Following a challenge to the transfers, BofA in 2007 agreed to pay the Internal Revenue Service a $10 million dollar fine and spent $10 million in shifting the participants’ 401(k) assets out of a commingled trust back into separate accounts.

A 2015 opinion by the U.S. Court of Appeals for the Fourth Circuit held that because the transfers eliminated the separate account feature, the participants were entitled to monetary relief in the form of accounting for profits. Accounting for profits is a remedy based upon avoiding unjust enrichment, which holds a defendant liable for profits, not for damages.

At issue on trial was whether, after it restored the separate account feature and paid the $10 million fine, BofA profited from its transfer strategy.

The investments retained by BofA from the transferred assets were $379 million, according to the participants. However, BofA’s expert witness, who said the plan lost $272 million as a result of the transferred assets, was deemed more credible by the court.

Tin Fulton Walker & Owen, Gottesdiener Law Firm and Thomas D. Garlitz represented the employees. McGuireWoods LLP and Sidley Austin LLP represented BofA.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Pension & Benefits Daily