CNA Financial, Northern Trust Can’t Escape 401(k) Lawsuit

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

CNA Financial Corp., its subsidiary Continental Casualty Corp., and Northern Trust Co. must defend a lawsuit challenging the cancellation of an in-house group annuity contract in Continental’s 401(k) plan ( Dolins v. Cont’l Cas. Co. , 2017 BL 291623, N.D. Ill., No. 1:16-cv-08898, 8/18/17 ).

The plan participant sufficiently alleged the occurrence of a prohibited transaction under the Employee Retirement Income Security Act, Judge Gary Feinerman of the U.S. District Court for the Northern District of Illinois held Aug. 18 in declining to dismiss the lawsuit. The guaranteed 4 percent minimum interest rate provided in the annuity contract was an “asset” of the plan and its termination along with the contract constituted a “transfer” of the asset right back to Continental—a party in interest, Feinerman held. Continental’s being relieved of the obligation to a 4 percent annual return benefited the insurer at the expense of the participants, the court said.

The dispute stems from Continental’s 2011 decision to cancel the group annuity contract, which provided employees with a guaranteed interest rate of 4 percent. According to the lawsuit, Continental canceled the contract to increase its own profits and appear more attractive to potential buyers, regardless of the negative effect it had on the employees’ retirement assets.

Feinerman’s decision is significant for its discussion of whether the interest rate was a plan asset. Appeal courts have adopted two approaches to resolve this.

The U.S. Court of Appeals for the Ninth Circuit adopted a functional approach that involves determining whether the item in question may be used to the benefit of the fiduciary at the expense of participants. Other circuits, including the First, Second, Third, Eighth and Tenth, adopted a property rights approach, under which the assets of a plan are to be identified on the basis of ordinary notions of property rights under non-ERISA law.

The Seventh Circuit, which reviews decisions from district courts in Wisconsin, Indiana and Illinois, hasn’t adopted either of these approaches. Feinerman declined to adopt one of the approaches, holding that the guaranteed interest rate was a plan asset under both.

The court rejected Northern Trust’s argument that it didn’t violate its fiduciary duties because it acted as a directed trustee. In doing so, Feinerman pointed out that Northern Trust saw multiple consecutive years of declining returns approaching closer and closer to the guaranteed 4 percent floor, and rather than maintaining that floor for the plan, it allowed the plan to give it up for nothing in return.

Keller Rohrback LLP and Levun Goodman & Cohen LLP represent the participant. Seyfarth Shaw LLP represents Continental Casualty, CNA Financial and Northern Trust. Novack & Macey LLP and Debevoise & Plimpton LLP represent Continental Assurance.

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

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