Court Fails to Find ERISA Breach
Plan sponsors, especially those in the financial services industry, have some assurance about their right to invest in affiliated mutual funds and other assets for their retirement plans, based on a recent ruling by an appeals court. The 4th U.S. Circuit Court of Appeals on Jan. 14 upheld the dismissal of a plan participant suit against Bank of America Corp. that alleged the bank violated ERISA rules in selecting and holding bank-affiliated mutual funds among the investments for the company’s 401(k) and defined benefit pension plans.
The 4th Circuit affirmed a decision by the U.S. District Court for the Western District of North Carolina in David v. Alphin (Case No. 11-2181) that the defendants’ claims lacked standing, and dismissed the action with prejudice.
The appellate judges ruled that the plaintiffs’ appeal lacked constitutional standing, which arises from an actual or imminent threat of injury and a demonstrated causal relationship between the alleged injury and the challenged action. They also concluded that it was unlikely that a favorable decision could redress the damage claimed, as the plaintiffs did not allege they were denied benefits.
Background of the Case
The suit was first filed in August 2006 in the Northern District of California, then was moved the next year to the federal court in western North Carolina, Bank of America’s headquarters state. The plaintiffs alleged that many better options than the Bank of America-affiliated mutual funds were available and that most of the affiliated funds offered participants poor performance and high fees. They claimed that these violations caused multimillion-dollar losses to their retirement plans.
They also alleged that the members of the bank’s Corporate Benefits Committee breached their duties of prudence and loyalty when they selected the Bank-affiliated funds for inclusion in the 401(k) plan investment lineup.
On May 11, 2010, Bank of America moved for summary judgment on the 401(k) plan claims, asserting that they were time-barred and could no longer be pursued because they arose from the
initial selection of the bank-affiliated assets, rather than from the repeated failure of the benefits committee to remove the funds. The last selection action constituting the alleged breach occurred in 1999, more than six years before appellants filed their lawsuit.
Finding out More
To read the complete story on Thompson’s HR Compliance Expert, click here.
To learn more about plan sponsors’ fiduciary duties and investment responsibilities, see ¶210 in The 401(k) Handbook.
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