Last month we featured on this blog an article previewing a case concerning the fiduciary obligations of administrators of ESOPs (Employee Stock Option Plans) which the United States Supreme Court agreed to consider. This case involving interpretation of ERISA (the Employee Retirement Income Securities Act) caught the Court’s attention because a conflict arose among various federal appellate circuits as to whether plaintiffs suing pension administrators must plead that the administrator acted unreasonably in order to establish a prima facie case that the administrator breached a fiduciary obligation to the beneficiaries of the pension plan or acted with misfeasance. The fact that the appellate courts in different federal circuits split on the issue made the case discussed in the article the type of matter the Supreme Court often resolves. As ERISA constitutes a federal statutory framework, the Supreme Court would prefer the various circuits to interpret the statute uniformly throughout the entire country.
Now the Court may have an opportunity to settle another ERISA-related conflict relating to a similar topic. On January 15, 2014, the Court convened a conference to decide if it should accept certiorari of a case in which a panel of judges on the Seventh Circuit Court of Appeals held that a person’s
“control” over a pension plan’s assets will “support a finding of fiduciary status only if” the plaintiff alleges mishandling of the plan’s assets. According to the petitioner in Leimkuehler, et. al. v.American United Life Ins. Co.( Cert. No.13-536, 7th Cir.), the Court should address “[w]hether the court below erroneously held, in conflict with the decisions of six other circuits, that a person who exercises some authority or control over the assets of a plan is a fiduciary with respect to that plan only if he is alleged to have “mismanaged” the plan’s assets?”
In Leimkuehler, the plaintiff has asserted that, where a third-party administrator is incentivized by revenue sharing payments from mutual funds and also have the opportunity to choose from mutual share classes with various revenue-sharing formula, a conflict of interest arises which represents a breach of a fiduciary responsibility. Some courts have condoned the practice so long as the plans with such revenue sharing are structured to be cost-neutral. But the plaintiff in this case submits that any third-party administrator who invests in such funds exercises fiduciary responsibilities for purposes of the ERISA statute. This possesses important legal significance because whether an administrator is a fiduciary for ERISA purposes then determines if that administrator can be held liable for violations of the prohibition against “deal[ing] with the assets of the plan in his own interest or for his own account, … or receiv[ing] any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.” ERISA § 406(b)(1) & (3).
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