In Santomenno v. Transamerica Life Ins. Co., No. 16-56418 (9th Cir. Feb. 23, 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”): (1) reversed the district court’s order denying defendants’ motion to dismiss an ERISA case alleging breach of fiduciary duties in connection with a retirement plan, and (2) vacated the district court’s subsequent class certification orders.
In this case, the district court had held that a plan service provider breached its fiduciary duties to plan beneficiaries first when negotiating with an employer about providing services to the plan and later when withdrawing predetermined fees from plan funds. An employer that forms an ERISA plan is a statutory fiduciary, and a plan service provider becomes a functional fiduciary under certain circumstances.
Joining other circuits, the Panel held that a plan administrator is not an ERISA fiduciary when negotiating its compensation with a prospective customer. As to alleged breaches after the defendant became a plan service provider, the Panel held that the defendant was not a fiduciary with respect to its receipt of revenue sharing payments from investment managers because the payments were fully disclosed before the provider agreements were signed and did not come from plan assets. Agreeing with other circuits, the Panel held that defendant also was not a fiduciary with respect to its withdrawal of preset fees from plan funds. The Panel concluded that when a service provider’s definitively calculable and nondiscretionary compensation is clearly set forth in a contract with the fiduciary-employer, collection of fees out of plan funds in strict adherence to that contractual term is not a breach of the provider’s fiduciary duty.
The Panel remanded with instructions to the district court to dismiss the complaint.