ERISA-Second Circuit Upholds District Court’s Dismissal Of Plaintiff s’ Claims Of Breach Of Fiduciary Duty Stemming From Savings Plan Investments and Fees

This case is to be contrasted with Braden v. Wal-Mart Stores, Inc. (see my blog of December 1), in which the Eighth Circuit let some similar claims go forward.

In Taylor v. United Technologies Corp., No. 09-1343-cv (2nd Circuit 2009), in a summary order, the Second Circuit upheld the District Court’s dismissal of the plaintiffs’ claims of breach of fiduciary duty under ERISA stemming from savings plan investments and fees. In doing so, the Second Circuit essentially adopted the District Court’s opinion in Taylor v. United Technologies Corp., No. 06-cv-1494, (D. Conn. 2009).

In this case, the plaintiffs, participants in the United Technologies’ Employee Savings Plan (the “Plan”), had alleged that United Technologies Corp. and the Plan’s fiduciaries (the “defendants”) had breached their fiduciary duties to the Plan by (1) holding cash in the Plan’s company stock fund, (2) payment of excessive recordkeeping and administrative fees, including “sub-transfer fees” and “revenue sharing fees”, (3) making misleading representations regarding fees and expenses, (4) providing participants with confusing, false and misleading information, including information regarding payments to the Plan’s recordkeeper, (5) failure to capture “float” , (6) payment of excessive investment management and brokerage fees with respect to the mutual funds made available for investment under the Plan, and (7) inclusion of imprudent investment options-actively managed funds- in the Plan. The District Court dismissed the plaintiffs’claims, for the reasons summarized below.

As to claim (1), the District Court said that the plaintiffs did not provide evidence that the defendants imprudently retained an excessive amount of cash in the company stock fund. Also, the evidence indicates that the defendants’ evaluation of the merits of retaining this cash to provide transactional liquidity satisfies ERISA’s prudent person standard. The fees at issue in claim (2) were fees paid by mutual funds in which plan participants had invested, and therefore did not involve any payments made with plan assets. As to claims (3) and (4), the evidence indicates that the defendants did not make misleading communications to Plan participants, and that they disclosed information as required by ERISA. Also, the plaintiffs failed to demonstrate the materiality of any nondisclosure, with “materiality” being determined by whether the nondisclosure would mislead a reasonable participant when making an adequately informed investment decision. The plaintiffs did not produce enough evidence as to claim (5). As to claims (6) and (7), the facts detail the evaluation and analytical process by which UTC selected the investment options and reviewed the fees to be charged versus the possible returns net of expenses. The existence and use of this process negates the claim of imprudent selection and excessive fees.

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