Chief U.S. District Judge Thomas B. Russell of the U.S. District Court for the Western District of Kentucky ruled that University Medical Center Inc. was within its rights to move participants’ balances into a new qualified default investment alternative (QDIA) based on 2007 U.S. Department of Labor (DoL) regulations on the issue.  Russell found that UMC was protected by the DoL safe harbor and that that UMC had authority under plan documents to alter participants’ previous investment decisions under certain circumstances.

The DoL said stable value funds would generally not be permitted as QDIAs, encouraging plans to have QDIAs that focus on long-term investment appreciation rather than on low-yield stability. Based on that regulatory direction, Russell said UMC had the right to move the assets of plaintiffs James C. Bidwell and Susan Wilson from the stable value fund to a Lincoln LifeSpan Asset Allocation Model (LSA). Both were offered by Lincoln Retirement Services Co.

As a part of that process, Lincoln sent notices to participants indicating that their funds would be reinvested in the LSA unless they elected to keep their stable value fund allocation. Lincoln and UMC alleged that Bidwell and Wilson never informed them of their desire to maintain their investments in the stable value fund, while Bidwell and Wilson alleged that they never received the notices. The plaintiffs claim had they received the notice, they would have reinvested the entirety of their accounts in stable value fund.

“UMC did not arbitrarily or capriciously exercise its discretionary authority to transfer Plaintiffs’ retirement funds between investments,” Russell wrote. “Instead, UMC construed certain provisions of the governing documents and only acted after first attempting to contact Plaintiffs through the notice that was sent in accord with the notice provisions of ERISA. Under these circumstances, the Court is incapable of finding that UMC breached its fiduciary duties."

Bidwell and Wilson claim that only in October of 2008, after receiving their quarterly statements from the plans, did they discover the change to their investment portfolio. Both immediately switched their investments back to the stable value fund, but they allege that in those three months Bidwell lost $85,000 and Wilson lost $16,900.

The resulting January 2010 suit named both the employer and Lincoln as having violated the fiduciary provisions of ERISA; Russell declared that Lincoln was not a fiduciary in the case and threw out allegations against it.

The court further found that UMC reasonably interpreted the plans in light of the DoL regulations. In transferring the funds, UMC relied on sections in the governing documents that allowed for the designation of the participants' investments if no election was made, the sections were interpreted with an eye toward complying with the DoL regulations, and UMC acted only after attempting to contact the participants through notices, the court said.