Labor Department Backs Off Longtime 401(k) Policy Priority

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By Jacklyn Wille

The Department of Labor sent signals this week that it may be backing off one of its signature retirement-related enforcement efforts.

During the past five years, the DOL has filed friend-of-the-court briefs in every federal appeals court case asking whether a 401(k) plan service provider can be liable as a fiduciary under the Employee Retirement Income Security Act. The DOL this week declined to do the same in a case against Transamerica Life Insurance Co. that’s pending in the U.S. Court of Appeals for the Ninth Circuit.

While this move could signal a shift in DOL enforcement priorities in the Trump administration, it also could be read as a natural byproduct of a federal agency lacking top leadership following a presidential transition, sources with knowledge of the DOL’s operating procedures told Bloomberg BNA.

The department has appeared to adopt a wait-and-see approach in certain matters since President Donald Trump assumed office on Jan. 20. It delayed the applicability date of the Obama-era fiduciary rule by 60 days earlier this month in response to a presidential memorandum ordering a second look at the rule. Prior to making that change, the department asked two federaljudges to temporarily pause lawsuits challenging the fiduciary rule.

Garrett W. Wotkyns, an ERISA litigator and partner with Schneider Wallace Cottrell Konecky Wotkyns LLP in Scottsdale, Ariz., told Bloomberg BNA that the lack of a DOL brief in this case could be chalked up to the transition period between presidential administrations. However, Wotkyns refused to discount the possibility that it reflected a shift in priorities at the Trump-era Labor Department.

“What’s the old saying—you don’t need a weather man to know which way the wind blows? That’s about what I would say about all this,” Wotkyns said. “Elections have consequences, and this one certainly did. What we’re talking about right now may be the tip of the iceberg in terms of how the new Labor Department thinks about retirement plan investors.”

What’s at Stake

This series of cases is an effort to hold 401(k) service providers like Transamerica liable as ERISA fiduciaries for the allegedly high fees charged by 401(k) plans. The DOL filed briefs supporting this effort in cases against American United Life Insurance Co., John Hancock Life Insurance Co. and Principal Life Insurance Co. The department lost every time, with the Third, Seventh and Eighth circuits declining to hold the companies liable as ERISA fiduciaries.

In declining to treat these 401(k) service providers as ERISA fiduciaries, all three courts articulated the same standard: to hold a service provider liable for fiduciary breach, the activities giving rise to fiduciary status must bear some connection to the activities giving rise to the breach.

The Ninth Circuit is scheduled to consider the same issues in a long-running lawsuit against Transamerica filed on behalf of about 300,000 participants in 7,400 401(k) plans ( Transamerica Life Ins. Co. v. Santomenno , 9th Cir., No. 16-56418, appeal docketed 9/26/16 ). The participants suing Transamerica had some success in the lower court, when a federal judge found in 2013 that the company qualified as an ERISA fiduciary.

Although the Ninth Circuit won’t have the DOL’s arguments to consider, it received amicus briefs from interest groups arguing both sides of the issue. The AARP argued that service providers like Transamerica are ERISA fiduciaries when they exercise control over plan fees and have authority over a plan’s investment lineup. A joint brief filed by the American Council of Life Insurers, the American Benefits Council and the Chamber of Commerce took the opposite position, arguing that imposing fiduciary status on companies like Transamerica would drive them out of the marketplace.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

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