In Renfro v. Unisys Corp., 2011 U.S. App. LEXIS 17208 (3rd Cir. Aug. 19, 2011), members of a 401(k) defined contribution plan (“Plaintiffs”) brought this action against Unisys Corp. (“Unisys”) and Fidelity Management Trust Co. (“Fidelity”) (collectively, “Defendants”), under the Employment Retirement Income Security Act of 1974 (“ERISA”). Plaintiffs alleged that Defendants violated their fiduciary “duties of loyalty and prudence” through the “the selection and maintenance of the mix and range of investment options included in the plan.” The trial court granted the defendants’ motion to dismiss and the Third Circuit Court of Appeals affirmed.
The Unisys Corporation Savings Plan (the “Plan”) includes a stable value fund, the Unisys Stock Fund, and seventy-one options provided by Fidelity. The seventy-one options are broken into four commingled pools and sixty-seven mutual funds. Mutual funds are subject to a number of reporting requirements and, as a result, management and administrative fees are attached.
Plaintiffs alleged that the attached fees were excessive when compared to other viable investment options. Defendants moved to dismiss the action under Fed. R. Civ. P. 12(b)(6). In considering an ERISA dismissal motion, the court must question “whether [the entity] is a fiduciary with respect to the particular activity in question.” The court evaluated each of the defendants individually.
While Fidelity was the directed trustee of the Plan under 29 U.S.C. § 1102(a)(1), the court held that it had no fiduciary duties relating to the challenged conduct because it was responsible for investing and administrative functions rather than selection of investment options. Fidelity was found not liable as a co-fiduciary, nor was it responsible for restitution.
In evaluating Plaintiffs’ claims against Unisys, the named fiduciary under 29 U.S.C. §1102(a)(1), the court adopted the analysis of other circuits in Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), and Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009). Courts “look first to the characteristics of the mix and range of options and then evaluate the plausibility of claims challenging fund selection against the backdrop of the reasonableness of the mix and range of investment options.” The court specifically assessed the available “risk profiles, investment strategies, and associated fees,” and found the Plan included “a [reasonable] variety of risk and fee profiles.” The court noted that allegations of concealed kickbacks may lead to a different analysis.
Finally, because the court affirmed the order of dismissing the action against Unisys, it refrained from evaluating Unisys’ motion for summary judgment under ERISA’s safe harbor provision, 29 U.S.C. § 1104(c).
The primary materials for this case may be found on the DU Corporate Governance website.