Bank of America Wins 401(k) Asset Transfer Appeal

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. defeated an appeal challenging a 20-year-old, $3 billion transfer from the company’s 401(k) plan to its pension plan.

A federal district court didn’t err in using the bank’s approach to determine whether it profited from the transfers and then conclude that since it didn’t, the workers weren’t entitled to any monetary recovery, according to a split decision issued June 5 by the U.S. Court of Appeals for the Fourth Circuit.

The ruling is the latest installment in a 13-year court saga involving the workers and the bank that has gone three times to the appeals court. In 2005, the workers accused BofA of violating federal benefits law by depriving them of the “separate account” feature of their 401(k) plan in 1998 when the bank transferred their assets to its general pension plan.

In 2015, the Fourth Circuit held that the workers were entitled to some monetary relief because the transfers eliminated the separate account feature. After a four-day trial, the district court agreed with BofA’s argument that the plan’s investment strategy performed poorly and didn’t profit from the transfers.

The judges rejected the workers’ argument that the district court should have calculated all profits accruing to the pension plan during the course of the commingling of the funds and award them a proportionate share of those profits.

Despite finding that multiple courts have endorsed use of the proportionate-share-of-the-whole approach when wrongdoers profit from the use of commingled funds, the judges said there is no requirement to follow it in one particular case.

The Employee Retirement Income Security Act doesn’t require district courts to award relief based on the proportionate-share-of-the-whole methodology on fiduciary breach claims, the judges said. Rather, courts have discretion to consider other approaches in deciding the appropriate relief under the particular facts of a case, the judges said.

Judge James A. Wynn issued the unpublished opinion, which was joined by Judge Henry F. Floyd.

Judge Barbara Milano Keenan agreed with the majority’s ruling that an ERISA violation doesn’t require the application of a proportionate-share-of-the-whole approach, but she said she would have held that the district court abused its discretion in allowing the bank to profit from its own misconduct.

In her dissent, Keenan cited BofA’s particular conduct in this case, which, in her view, allowed the bank to profit by using the workers’ money for its own purposes.

Bredhoff & Kaiser PLLC, Thomas D. Garlitz PLLC, and Gottesdiener Law Firm PLLC represent the workers. McGuireWoods LLP and Sidley Austin LLP represent BofA.

The case is Pender v. Bank of America, 4th Cir., No. 17-1485, opinion affirming the district court decision in defendant’s favor 6/5/18.

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