The United States District Court for the Eastern District of Pennsylvania dismissed an ERISA fiduciary breach lawsuit brought against Unisys Corp, and Fidelity on Monday of this week. In Renfro v. Unisys Corp. (E.D. Pa., No. 07-2098, 4/26/10), the plaintiff's alleged that Unisys's Section 401(k) plan held $2 billion in assets between 2000 and 2007. The plan had 30,000 participants, placing it in the top 1 percent of all Section 401(k) plans in the United States. The plan offered participants 70 investment options, including mutual funds, index funds, commingled pools, fixed income funds, and a money market fund. The Plaintiff's alleged that the investment funds offered fees ranging from as little as 0.10 percent to as high as 1.21 percent. It was alleged that nearly $1.9 billion of the plan's assets were held in Fidelity-branded retail mutual funds and all of the assets were held in vehicles managed or operated to some extent by a Fidelity affiliate, the court said. A group of Unysis 401(k) plan participants participants filed a lawsuit against Unisys, the plan fiduciaries, and the Fidelity companies. They claimed that the defendants breached their ERISA fiduciary duties by causing plan participants and beneficiaries to pay excessive administrative and investment management fees. In particular, the participants asserted that Unisys should have taken advantage of the plan's large size to negotiate lower fees or increased services for the plan's participants and beneficiaries.
In granting Unisys's motion to dismiss, the District Court found that there was nothing in ERISA that would have required the fiduciaries of Unisys's Section 401(k) plan “to get the best deal imaginable.” Rather, the Court found, ERISA merely requires fiduciaries “to act carefully, skillfully, prudently, diligently, and solely in the interest of participants and beneficiaries." According to the Court, "[w]hile this is not a light duty, it does not support a lawsuit that simply claims the fiduciaries could have done better had they worked harder to leverage their market power.” The Court further noted that “[t]here is nothing about the slate of investment options the Plan offered that suggests the Unisys Defendants did not meet the requisite standard of care. The Plan offered participants a number of investment options with varying fees, risks, and potential rewards...." The Court also commented found that even if Unisys selected overly expensive funds for the plan, it would still be entitled to summary judgment because its plan met the safe harbor provisions of ERISA Section 404(c). In so ruling, the court rejected the plaintiffs' reliance on Department of Labor regulations indicating fiduciaries will not be shielded by Section 404(c) when they select imprudent investments for the plan. The court said it would not defer to the Department of Labor's interpretation of Section 404(c).
The District Court also dismissed fiduciary breach claims that had been brought against the 401 (k) plan's service and investment providers Fidelity Management Trust Co., Fidelity Investments Institutional Operations Co., and Fidelity Management & Research Co. The Court held that none of the Fidelity defendants acted as fiduciaries of Unisys's Section 401(k) plan. In rejecting the plaintiffs' contention that Fidelity Management had “veto power” over the selection of plan investment options and as such it had the requisite discretionary authority or responsibility that would render it a plan fiduciary. The court said Fidelity Management had no “veto power” because at all times it was Unisys's fiduciaries that had authority to decide which investments would be offered under the plan. The court also rejected the plaintiffs' allegation that Fidelity Management was a fiduciary because it exercised discretion over “float interest” on plan contributions. [Float interest is the interest earned on plan contributions from the time that they were received by Fidelity Management until the time they were credited to participant accounts.] The Court noted that, “[e]ven if FMTC is a fiduciary with respect to float interest, that does not render it a fiduciary with respect to investment selections,” the court said.