Transamerica not a Fiduciary in Fee Case According to Court

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In recent news, the 9th U.S. Circuit Court of Appeals remanded the ERISA suit against Transamerica Life Insurance Company (TLIC) back to a district court with instructions to dismiss it. In the case, 401(k) participants allege that TLIC and affiliates violated the Employee Retirement Income Security Act when charging fees and in the administration of specified investment accounts.

According to the complaint, TLIC was in violation of ERISA because they charged fees on separate accounts on top of fees charged by managers of underlying investments, processing “Investment Management Charge” on separate accounts, receiving revenue sharing payments from underlying investment account managers, failing to invest in the lowest prices share class of mutual funds, and failing to pass savings in fees along to plan participants.

The group of plaintiffs previously filed a separate lawsuit listing John Hancock as the defendant and including similar allegations. In the case against John Hancock, the 3rd U.S. Circuit Court of Appeals found that the company was not acting as a fiduciary regarding the allegations creating the foundation of the case. The 9th Circuit agreed with the 3rd Circuit in that finding the service provider to be a fiduciary would create absurd situations. Service providers negotiate fees. If they were simultaneously responsible as fiduciaries, they would need to promise that their fees were not any higher than the fees of any competitor. This would blow their ability to negotiate at arm’s length with an employer out of the water. It would also leave any employer who agreed to a fee structure the option to later sue to have it lowered simply by invoking the fiduciary obligation of the administrator. Therefore, the court finds that the service provider owes no fiduciary duty in regard to the negotiation of fee compensation because the trustees had the option to reject the provider’s product and select a different provider. The choice was in their hands. The other allegations failed to stick for the same reason. TLIC did not have the fiduciary duty in regard to the other matters either. 

If you need assistance considering ERISA violations or if you feel your employer has breached their fiduciary duty, please get in touch with one of the experienced California employment law attorneys at Blumenthal Nordrehaug Bhowmik De Blouw LLP.