The Eighth Circuit ruled that an insurance company that offered investment options and associated services to employees participating in a retirement plan was not acting as a fiduciary with respect to allegedly excessive fees it charged plan participants. The ruling provides guidance for service providers who contract with retirement plans. The case is McCaffree Financial Corp. v. Principal Life Ins. Co., No. 15-1007 (8th Cir. Jan. 8, 2016).
McCaffree Financial Corp (“McCaffree”) sponsored a retirement plan for its employees. It entered into a contract with Principal Financial Group (“Principal”), whereby Principal provided plan participants with options for investment. In return, participants would pay Principal both management and operating fees, in addition to any fees charge by the mutual fund selected by the participant in their investment account. McCaffree later brought suit on behalf of its employees, alleging Principal was charging excess fees.
ERISA requires a plaintiff to show that the service provider was a “fiduciary” to the extent that the service provider: (i) exercised discretionary authority over the management of the plan or plan assets; (ii) offered investment advice for a fee to plan members; or, (iii) had discretionary authority over plan administration. Further, the plaintiff must show that the person was acting as a fiduciary with respect to the wrongdoing alleged the complaint. In other words, there must be some nexus between the alleged wrongdoing and the alleged fiduciary responsibility.
The Eighth Circuit ruled that McCaffree’s allegations failed because there was no nexus between the alleged wrongdoing, charging excess fees, and the basis for holding Principal accountable as a fiduciary. Principal and McCaffree had negotiated the fees at arms-length. Thus, Principal could not exercise any fiduciary authority during such negotiations because McCaffree was free to negotiate with other providers and choose their services over Principal’s. None of McCaffree’s remaining four arguments persuaded the court because even where Principal arguably did act as a fiduciary, those acts were not related to the excessive fees that were charged.
The ruling minimizes the risk of fiduciary liability for service providers’ enforcement of fee arraignments that resulted from arms-length negotiations with plan sponsors.
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