BNY Mellon Not Liable for Pension Investment Mishap

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By Jacklyn Wille

Bank of New York Mellon escaped liability for $1.7 million in losses to WellSpan Health System’s pension plan caused when the bank erroneously transferred $15 million in pension assets to cash equivalents ( Harley v. Bank of N.Y. Mellon , S.D.N.Y., No. 1:15-cv-08898-GHW, 1/9/17 ).

A federal judge attributed the transfer to a miscommunication between the WellSpan plan and plan trustee BNY, noting that the customer service BNY provided to WellSpan declined markedly after a period of personnel turnover at the bank. Even so, the judge ruled Jan. 9 that BNY wasn’t liable under the Employee Retirement Income Security Act, because it nevertheless met the “minimum level” of service required of a directed trustee under the statute.

The miscommunication—contained largely in 14 seconds of indiscriminate audio reviewed “numerous times” by the judge—stemmed in part from the WellSpan fiduciaries’ “persistent ignorance” about the proper procedure for initiating transactions with BNY, the judge said. According to the judge, WellSpan was “sheltered” from this ignorance for years by the work of a “particularly effective client team at BNY.” The mistaken transfer occurred only after this client team left and WellSpan couldn’t properly navigate its duties without this special assistance, the judge said.

The lawsuit, which was transferred to a New York federal court after being filed in Pennsylvania, accuses BNY of defying instructions to transfer pension assets into equities and instead transferring those assets into a cash equivalent that earned significantly less money.

In a 48-page opinion issued after a non-jury trial, the judge explained that WellSpan didn’t follow all the required steps for initiating the transfer into equities. The BNY representative who handled WellSpan’s account understood what the plan wanted, the judge said, but he “took no actions to help WellSpan achieve the goal that he knew they wanted to achieve.”

Even so, the judge found that this wasn’t sufficient reason to impose ERISA liability on BNY, which served as a directed trustee for the pension plan. The duties of a directed trustee are “extremely narrow” and don’t include, for example, evaluating the “financial merits” of an investment directive, the judge said.

WellSpan argued that ERISA liability was warranted based on BNY’s failure to live up to its prior standard of conduct, but the judge disagreed.

“While it may have been good customer service to do so, BNY Mellon did not, as a directed trustee, have a responsibility under ERISA to educate WellSpan about how to prepare investment instructions or to advise WellSpan on an unsolicited basis regarding how to best implement their intentions,” the judge reasoned.

Judge Gregory H. Woods of the U.S. District Court for the Southern District of New York wrote the decision.

Stevens & Lee PC represented the WellSpan plan. Reed Smith LLP and Anderson Kill PC represented BNY.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

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

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