BofA Wins Suit Regarding use of Proprietary Funds

A federal court has dismissed all charges against Bank of America for allegedly breaching its Employee Retirement Income Security Act (ERISA) fiduciary duties by using proprietary funds in its 401(k) plan investment lineup.

Several participants claimed that BofA favored its own funds and that the fees for the funds increased unreasonably after the company acquired Nations Bank.  

Most of the claims were dismissed as time-barred under ERISA’s six-year statute of limitations on fiduciary breach claims. Even though the plaintiffs contended that a new violation occurred each month when participant contributions were deposited into the allegedly offending funds, the U.S. District Court for the Western District of North Carolina ruled that the conduct of which plaintiffs complain is the initial decision to invest in bank-affiliated funds, and cannot be recast as a failure to correct an omission. Further, U.S. District Judge Max O. Cogburn Jr. wrote, ERISA does not impose any obligation on fiduciaries to revisit their initial decision to include bank-affiliated funds in the plan lineup; rather, it prohibits and makes actionable a plan fiduciary’s decision to engage in a prohibited transaction.  

Cogburn Jr. added: “the court can find no continuing obligation to remove, revisit, or reconsider funds based on allegedly improper initial selection. If that were the case, the limitations imposed by Section 1113(1)(a) would be meaningless and expose present Plan fiduciaries to liability for decisions made by their predecessors – – decisions which may have been made decades before and as to which institutional memory may no longer exist. Indeed, such a determination would turn Section 1113(a) on its head, making Section 1113(1)(b)’s open-ended period of repose for failure to correct omissions also applicable to failure to correct affirmative acts, which are clearly controlled by Section 1113(1)(a)’s close-ended period of repose.” 

The court noted that in 1999, a project team was formed by the Corporate Benefits Committee (CBC) to evaluate various issues relating to the 401(k) plan, including its selection and use of proprietary investment options, processes for paying expenses, and investment performance and fees. The team found that the plan’s procedures for selecting and monitoring investment options complied with fiduciary standards, that the performance and expenses of the mutual funds in the 401(k) plan’s lineup were reasonable, and that the administrative expenses paid by the plan complied with all regulatory requirements.   

According to the opinion, since at least 2000, 401(k) plan participants were provided with disclosures about the plan, including the funds included in the plan and related fees. In addition, participants in the plan receive copies of the Summary Plan Description (SPD) when they become eligible to participate in the plan, and periodically. Since at least May 2000, the summary plan description has consistently set forth a description of each of the funds. Several SPDs also advised participants that “Banc of America Advisors, Inc., an affiliate of Bank of America, N.A., performs investment advisory and other services for Nations Funds, and receives fees for such services.”  

On their claim as to the Columbia Quality Plus Bond Fund, the only bank-affiliated fund added to the plan’s lineup within the six-year period immediately preceding the filing of the initial complaint, Cogburn Jr. found none of the plaintiffs actually participated in that fund; therefore, they lack standing to pursue a claim.  

The case is David, v. Alphin