Merrill Lynch Beats Lawsuit Over Clifford Chance 401(k)

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 Jacklyn Wille

March 28 — Merrill Lynch & Co. beat class action claims by a former Clifford Chance US LLC litigator who accused the company of mismanaging his law firm's 401(k) plan.

A federal judge dismissed the claims against Merrill Lynch on March 25, after finding that the litigator—who represented himself without outside counsel—didn't show that Merrill Lynch acted as a fiduciary under the Employee Retirement Income Security Act when it provided record-keeping, administrative and investment services to the Clifford Chance plan.

The fiduciary status of plan service providers has become a sticking point in a number of recent lawsuits attempting to vindicate the allegedly high fees charged by 401(k) plans. In the past three years, three circuit courts have rejected similar lawsuits against American United Life Insurance Co., John Hancock Life Insurance Co. and Principal Life Insurance Co. after finding that they didn't qualify as ERISA fiduciaries.

The Department of Labor has argued forcefully against this trend, both in federal court filings and its formal proposal to expand the definition of an ERISA fiduciary, which is currently under review by the Office of Management and Budget .

Not a Fiduciary

According to the judge, the litigator's ERISA-based claims against Merrill Lynch—which included allegations of excessive fees and impermissible kickbacks—could succeed only if Merrill Lynch qualified as an ERISA fiduciary.

The litigator argued that Merrill Lynch became an ERISA fiduciary through its actions in selecting a roster of investment funds for the Clifford Chance 401(k) plan. The judge disagreed, explaining that courts have consistently declined to impose fiduciary status on service providers that create a menu of investment options for plan trustees.

Similarly, the judge found that Merrill Lynch didn't provide the kind of regular and individualized investment advice to the plan that would cause it to be an ERISA fiduciary.

The judge also rejected the litigator's attempt to hold Merrill Lynch liable under the Sherman Antitrust Act for using its position as plan record keeper to force its in-house investment products on participants.

Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York issued the decision.

Former Clifford Chance litigator Craig M. Walker represented himself. Sidley Austin represented Merrill Lynch.

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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