Bugielski v. AT&T Servs., Inc., No. 21-56196, __F.4th__, 2023 WL 4986499 (9th Cir. Aug. 4, 2023) (Before: Paez, Bade, Circuit Judges, and Collins, District Judge).
In this putative class action alleging prohibited-transaction and duty-of-prudence claims under ERISA, the Plaintiffs—former AT&T employees who contributed to AT&T’s retirement plan—appealed the district court’s grant of summary judgment to AT&T on the basis that AT&T had no obligation to consider all the compensation that Fidelity Workplace Services received in connection with its role as the Plan’s recordkeeper. The Ninth Circuit Court of Appeals found that the district court did not correctly apply the relevant substantive law to Plaintiffs’ ERISA claims and reversed and remanded the matter for it to do so. The court did affirm judgment as to Plaintiff’s reporting claim with respect to the compensation from BrokerageLink (Fidelity’s brokerage account platform) but reversed the judgment as to the compensation from Financial Engines, the company AT&T contracted with to provide optional investment advisory services to Plan participants.
By way of background, Fidelity has served as the Plan’s recordkeeper since 2005. It charges a flat fee for each participant and also offers other services to participants for a fee charged directly to the participant requesting the service. In 2012, AT&T amended its contract with Fidelity to provide participants with access to BrokerageLink. For a fee, BrokerageLink allows participants to invest in mutual funds not otherwise available through the Plan but in addition to fees it receives from participants, Fidelity receives “revenue-sharing fees” from the mutual funds. In 2014, AT&T contracted with Financial Engines to provide optional investment advisory services to Plan participants, and for an asset-based fee, it would manage a participant’s investments. AT&T authorized Financial Engines to contract directly with Fidelity to secure access it needed to participants’ accounts. Financial Engines and Fidelity entered into a separate agreement under which Fidelity received a portion of the fees that Financial Engines earned from managing participants’ investments.
Plaintiffs allege that AT&T violated ERISA by failing to consider the significant compensation that Fidelity received from these two companies. The court explained that the “threshold question is whether AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, ‘cause[d] the plan to engage in a transaction’ that constituted a ‘furnishing of goods, services, or facilities between the plan and a party in interest.’ Id. § 1106(a)(1)(C).” The court explained that the clear command of ERISA’s text, as reinforced by the regulation implementing § 408(b)(2) and EBSA’s explanation for its amendment, supports the conclusion that amending Fidelity’s contract constituted a prohibited transaction under § 406(a)(1)(C).
The court then considered whether the requirements for an exemption under § 408(b)(2) were satisfied. The court concluded that remand is necessary for the district court to consider § 408(b)(2)’s third requirement: whether Fidelity received no more than “reasonable compensation” from all sources for the services it provided the Plan. “This conclusion—that the fiduciary must consider all compensation the party in interest receives in connection with the services it provides the plan—is required by the text of the regulation, conforms to the structure and purpose of § 408(b)(2)’s requirements, and is reinforced by EBSA’s explanation for revising § 2550.408b-2.” To determine whether “no more than reasonable compensation is paid” for a party in interest’s services, a fiduciary should consider the compensation received by the party “from all sources in connection with the services it provides to a covered plan pursuant to” the contract, not just the compensation the party receives directly from a plan. The court found that AT&T needed to consider the compensation Fidelity received from Financial Engines and BrokerageLink when determining whether “no more than reasonable compensation” was paid for Fidelity’s services. The district court did not engage in this analysis; therefore, the court remanded the matter to the district court to conduct this analysis in the first instance. The court also reversed the district court’s judgment in favor of AT&T on Plaintiffs’ duty-of-prudence claim because it cannot conclude that AT&T, in fact, considered the fees Fidelity received from Financial Engines and BrokerageLink.
With respect to Plaintiffs’ reporting claim, Plaintiffs argue that AT&T breached its duty of candor by failing to accurately report on its Form 5500s the indirect compensation Fidelity received from Financial Engines and BrokerageLink. The court agreed with the district court that AT&T adequately reported the compensation from BrokerageLink. However, it parted ways with the district court as it relates to Financial Engines. The court found that the fees paid to Financial Engines needed to be separately reported on the Form 5500. Plaintiffs do not have to show that the error led to loss since Plaintiffs only seek equitable relief. The court reversed the judgment of the district court regarding AT&T’s reporting of the compensation from Financial Engines.
*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.
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