The U.S. District Court for the District of New Jersey found John Hancock is not an Employee Retirement Income Security Act (ERISA) fiduciary for the purpose of any of the claims asserted in the case. Because this required a complete dismissal of all the plaintiff’s claims, the court did not discuss their other arguments.
The court noted that in every case charging breach of ERISA fiduciary duty, the threshold question is whether the entity was “acting as a fiduciary . . . when taking the action subject to complaint.” The plaintiffs alleged John Hancock charged excessive fees, improperly received revenue sharing payments and improperly selected the JHT-Money Market Trust as an investment option.
The court cited the decision in Renfro v. Unisys (see “Unisys, Fidelity Win Excessive Fee Case Dismissal”), which made clear that a service provider “owes no fiduciary duty with respect to the negotiation of its fee compensation.” In the present case, John Hancock negotiated its service provider fees at arm’s length, and those fees were fully disclosed. The court noted the plans’ trustees were “free to seek a better deal with a different 401(k) service provider if [they] felt that [the] investment options were too expensive.” Accordingly, John Hancock owed no duty to plaintiffs with respect to its fees.
The court found service providers do not “become fiduciaries merely by receiving shared revenue,” especially when “the total expense of the investment was accurately disclosed” to plan participants, citing the case of Leimkuehler v. Am. United Life Ins. Co. (see “AUL’s Revenue Sharing Practices No Fiduciary Breach”). Again it noted that John Hancock’s fees, and the total expenses associated with each investment option, were fully disclosed to the trustees and plan participants. The trustees and plan participants chose to invest in those options in spite of the fees. The fact that John Hancock and the mutual funds chose to allocate those fees in a particular way after the fees were paid does not make John Hancock a fiduciary, the court said.
Finally, the court found John Hancock is not a fiduciary with respect to the selection of the JHT-Money Market Trust as an investment option. A company like John Hancock “is free to design the various plan templates and investment menus to offer to prospective clients, who can then decide to contract with [it] or not.” A provider does not incur fiduciary status simply because it offers a “big menu” of investment options from which a trustee selects a “small menu” for her plan, the court said, citing Renfro and Hecker v. Deere (see “Appellate Court Backs Deere Case Dismissal”). The court said just like in Hecker and Renfro, it was the trustees, not John Hancock, who had the final say on which investment options to include in the plans. Because John Hancock did not have ultimate authority over which investments were included in the plans, it was not a fiduciary with respect to the selection of the JHT-Money Market Trust.
The court had previously dismissed the claims because the plaintiffs were no longer investors in the funds in question, but the 3rd U.S. Circuit Court of Appeals sent the ERISA claims back to the lower court for consideration (see “Court Moves Forward Excessive Fee Claims Against John Hancock”).
The district court's latest opinion is here.