Court Finds No ERISA Violation in Wachovia Fund Merger

Wachovia Bank did not violate the Employee Retirement Income Security Act (ERISA) when it sent a form letter to investors notifying them of a fund's merger with another fund, a court ruled.

The U.S. District Court for the Eastern District of Pennsylvania dismissed the claims brought by Olivet Boys’ & Girls’ Club of Reading and Berks County. The court ruled that Wachovia cannot be a fiduciary to the club’s Money Purchase Pension Plan under ERISA because it did not render investment advice. The court pointed out that even the club described Wachovia’s actions with respect to the new fund as marketing.

According to the court opinion, the relevant ERISA regulations explain that fiduciaries must have discretionary authority with respect to purchasing or selling securities for the plan on a regular basis, pursuant to a mutual agreement that the services “will serve as a primary basis for investment decisions” and that the investment advice will be “individualized.” However, under the agreement between Wachovia and the club, the exchange of plan shares could happen only after the club consented, and the agreement expressly states that Wachovia “has not, and will not, provide investment advice.”

The club shot itself in the foot when it alleged that “a simple review” would make “clear” Wachovia’s alleged misrepresentation that the funds are “substantially similar.” The court said that if the club is correct, it makes their claim that they relied on Wachovia’s misrepresentation when making the decision to exchange shares “unreasonable at best.”

In September 2007, Wachovia sent a form letter to the Club and others who were invested in the Evergreen Limited Duration Fund explaining that the fund would be merging into the Evergreen Ultra Short Opportunities Fund and requesting that the club consent to the exchange of the plan’s shares of the former fund for those of the new Ultra Short Fund. All of the plan’s assets were invested in the Limited Duration Fund.

The club claims that in the form letter, Wachovia misrepresented that the two funds’ investment objectives and principal investment strategies were “substantially similar,” so it consented to the exchange of shares on October 1, 2007. According to the club, as a result, its plan lost $200,000.

The case is Olivet Boys’ & Girls’ Club of Reading and Berks County v. Wachovia Bank N.A., E.D. Pa., No. 5:08-cv-4702.