Court Deems MassMutual a Fiduciary for Setting Compensation

A plan sponsor’s lawsuit over revenue sharing payments has moved forward as a court found the sponsor's plan provider became a functional fiduciary by setting fees.

U.S. District Judge Patti B. Saris, of the U.S. District Court for the District of Massachusetts, noted in a recent opinion that under the Employee Retirement Income Security Act (ERISA) a person is a fiduciary “with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets; (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so; or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.”

Saris found MassMutual exercises the discretionary authority to determine its own compensation by setting separate investment account management fees (up to a maximum), which in combination with revenue sharing payments (RSPs), make up the provider’s compensation package. “A reasonable fact-finder could determine that MassMutual functions as an ERISA functional fiduciary under subsection (i) to the extent it determines its own compensation, takes fees out of the separate accounts, and has the discretion to offset some or all of the RSPs against management fees as its compensation,” she wrote.

In addition, the plaintiff in the case, Golden Star, Inc., argued that MassMutual’s services to the plan (such as sending out checks to plan members or reinvesting dividends) fall within the definition of “administration of the plan,” triggering fiduciary status under subsection (iii) as well. Saris agreed that to the extent MassMutual has discretionary control over factors governing its fees after entering into its agreement with Golden Star for administration of the plan, subsection (iii) is implicated as well.

Because she concluded that MassMutual is a functional fiduciary under subsections (i) and (iii) when it determines its compensation package for services provided in the separate investment accounts, Saris said, she needs not analyze the plaintiffs’ other theories for triggering fiduciary duties.

The wider case centers on Golden Star’s claims that MassMutual violated ERISA when it received revenue sharing payments from third-party mutual funds. Golden Star alleges these payments were essentially “kickbacks” that constituted prohibited transactions under ERISA, and violated the fiduciary duties imposed by the statute. MassMutual moved for summary judgment solely on the question of whether it qualifies as a “functional fiduciary” within the meaning of ERISA. Saris denied its motion.

The opinion in Golden Star, Inc. v. MassMutual Life Insurance Company is here.