Merrill Lynch Wins Dismissal of Excessive Fee Case

Merrill Lynch was not acting as a fiduciary under ERISA, a court found.

The U.S. District Court for the Southern District of New York has found that Merrill Lynch was not acting in a fiduciary capacity under the Employee Retirement Income Security Act (ERISA) by presenting a roster of funds from which 401(k) plan trustees could choose to offer in the plan. 

The court determined the trustees had final say on which investment options would be available to participants and the fact that they may have discussed or negotiated this decision with Merrill Lynch does not mean Merrill Lynch had discretionary control over the management or administration of the plan or its assets. In addition, U.S. District Judge Paul G. Gardephe ruled that offering a roster of funds from which to choose is not providing individualized investment advice to the plan. 

Merrill Lynch was the investment adviser for the Clifford Chance US LLP 401(k) plan from 1991 to 2006 and the recordkeeper, administrator and investment menu provider from 1991 through 2015. In this role, it provided a roster or slate of mutual funds from which plan trustees or the investment adviser would select to be offered in the plan. 

Craig M. Walker, who worked at Clifford Chance until 2003, but still has assets in the firm’s 401(k) plan, alleges that Merrill Lynch failed to include a sufficient number of low-fee funds in the roster of funds it provided to the plan’s trustees; included its own high-fee funds and collective investment trusts in the roster; and orchestrated a “revenue sharing” arrangement by which it reaped kickbacks from fees plan participants paid into the funds. In addition, he says the revenue sharing was divided with Clifford Chance and was not disclosed to participants until the second quarter of 2012. Even then, he says, the notice provided was misleading because the revenue sharing was described as “indirect revenue” and the notice did not disclose the size of payments.

The district court granted Merrill Lynch’s motion to dismiss the case. The opinion in Walker v. Merrill Lynch & Co., Inc. is here.