ERISA 404(c) Applied

U.S. District Judge David A. Katz of the U.S. District Court for the Northern District of Ohio ruled that UMB Bank had met the legal requirements for Section 404(c) under the Employee Retirement Income Security Act (ERISA), specifically noting that:

• the plan documents clearly indicated the plan's intent to be a Section 404(c) plan;
• the participants had independent control over their accounts and were provided sufficient information to establish the opportunity to exercise that control; and
• those participants could invest in any asset that was legally permitted and administratively feasible (complying with the "broad range" of investment alternatives requirement).

Here the court rules that, “between the manual and plan documents, Defendant provided Plaintiffs “sufficient information” within the meaning of ERISA in order to properly establish the opportunity to exercise control.”

As for the statute of limitations, the court held that since the 404(c) safe harbor defense was applicable, and sufficient to dismiss the claim, there was no reason to consider that objection.

Prohibited Transactions

The plaintiffs also argued that UMB Bank followed several investment directives that were prohibited under ERISA, and therefore breached its fiduciary duty.  However, Judge Katz noted that, “In the instant case, although several prohibited transactions may have occurred, Defendant simply did not cause the plan to engage in those transactions.”  He went on to note that, as agent for the plaintiffs, Davis caused the plan to engage in transactions used for the benefit of a party-in-interest (himself), but that since “plaintiffs exercised individualized control over their own assets and selected Mr. Davis as their agent, and therefore, as aforementioned, the Defendant Bank cannot be held liable for breach that occurs as a result of such individualized control.”  Judge Katz noted that, “section 406 of ERISA clearly prohibits fiduciaries from causing the plan to engage in prohibited transactions, rather than simply allowing such transactions to occur.”

Moreover, he observed that “Plaintiffs concede that Defendant performed no review of the investment directives in question, but indicate that Defendant was under an obligation as a fiduciary to do so.”  Judge Katz dispensed with this claim, noting that “as Defendant was relieved of fiduciary obligations under 404(c), and Defendant did not cause the prohibited transaction and therefore did not engage in a prohibited transaction within the meaning of ERISA.”