John Hancock Defeats ERISA Foreign Tax Credit Lawsuit

Though the court previously allowed class certification in the case, a new order firmly rejects the plaintiffs’ arguments that they were entitled to certain foreign tax rebates generated by group variable annuity contracts they had signed.

A new order has been issued by the U.S. District Court for the Southern District of Florida in an Employee Retirement Income Security Act fiduciary breach lawsuit filed against the John Hancock Life Insurance Co. and various related defendants.

The lengthy order, which stretches to 84 pages and quotes both Albert Camus and Jean-Paul Sartre for rhetorical effect, in the end sides firmly with John Hancock’s defense, finding the plaintiffs’ lawsuit and claims are “inconsistent with the choices they made about their ERISA plan and the party with whom they contracted to provide ERISA-related services.”

In late January, the court issued an order certifying a sizable class of plaintiffs, including trustees, sponsors and administrators of employee benefit plans that purchased a group variable annuity contract from John Hancock Life Insurance Co. via its Signature platform, which is run by John Hancock’s Retirement Plan Services division. The underlying case emerged in 2021 when trustees of the Romano Law PL 401(k) Plan sued John Hancock over the treatment of tax credits related to investments “in stocks and securities of foreign companies” that they chose for their plan under the group contract.  

The plaintiffs alleged John Hancock breached the Employee Retirement Income Security Act fiduciary duty of loyalty by receiving and retaining foreign tax credits for the international investment options, resulting in an alleged reduction in the value of the plan’s assets. The plaintiffs also alleged that John Hancock caused the plan to enter into an ERISA-prohibited transaction by not crediting it with the value of the FTCs.

As recounted in the order on the motion for class certification, some of the investments held foreign securities and incurred foreign taxes. The plaintiffs alleged that John Hancock did not actually pay the foreign taxes; effectively, they say, the plan did, because the value of the plan participants’ investments fell by the amount of taxes paid.

The new order concludes unequivocally that there was nothing disloyal about John Hancock’s “using, for itself, the foreign tax credits which only it, as the taxpayer, could use.”

“Not only could plaintiffs not use the FTCs, but they do not pinpoint any contractual language requiring John Hancock to give them the functional equivalent of the FTCs—a rebate or credit,” the order states. “Moreover, plaintiffs did not cite any on-point legal authority supporting their unique premise that John Hancock was required to provide rebates or credits merely because plaintiffs themselves chose to invest in mutual funds which invested in foreign securities. Likewise, plaintiffs did not submit legal authority establishing that John Hancock’s use of the FTCs breached a fiduciary duty or was somehow a prohibited transaction even though authorized by the federal tax code.”

The order concludes that it was plaintiffs, not John Hancock, who ultimately decided that the plan would be responsible for foreign tax payments by selecting the funds that they did.

“It was plaintiffs who decided to terminate their relationship with John Hancock by selecting another entity to provide the services which John Hancock had been providing even though the replacement did not provide FTCs (or rebates or credits for the FTCs) either,” the order states. “Plaintiffs chose to enter into a contract with John Hancock which expressly and unequivocally disclaimed John Hancock’s possible role as a possible fiduciary except in limited ministerial-act circumstances inapplicable here.”

The full text of the new summary judgment order is available here.