In Olivet Boys’ & Girls’ Club of Reading and Berks County v. Wachovia Bank, N.A., NO. 5:08-cv-4702 (E.D. Pa. 2009), the Court was faced with the following facts. The plaintiffs were Olivet Boys’ & Girls’ Club of Reading and Berks County (the “Club”) and the Club’s money purchase pension plan (the “Plan”). All of the Plan’s assets were invested in the Evergreen Limited Duration Fund (the “Limited Duration Fund”). The plaintiffs claimed, among other things, that defendant Wachovia Bank, N.A. (“Wachovia”) had breached its fiduciary duty under ERISA. This claim was based on a form letter which Wachovia sent to the Club, explaining that the Limited Duration Fund would be merging into the Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”), and requesting that the Club consent to the exchange of the Plan’s shares of the former fund for those of the new fund. The plaintiffs claim that, in the form letter, Wachovia misrepresented that the two Funds’ investment objectives and principal investment strategies were “substantially similar.” They allege that a simple review of the two Funds’ investment strategies “makes it clear” that they are not similar. Nevertheless, the plaintiffs consented to the exchange of their shares, and the Plan subsequently lost $200,000 on the investment in the Ultra Short Fund.
The Court dismissed the claim of breach of fiduciary duty on two grounds. The simpler ground was that the plaintiffs did not detrimentally rely on any misrepresentation by Wachovia. As to the alleged misrepresentation, namely the statement in the form letter that the two Funds are “substantially similar”, the allegation by the plaintiffs that a “simple review” would make Wachovia’s alleged misrepresentation clear undermines any argument of reliance on that misrepresentation.
The second and more interesting ground was that Wachovia is not a fiduciary under ERISA, and thus has no fiduciary duty, because it did not render investment advice to the plaintiffs. The plaintiffs describe Wachovia’s actions with respect to the new Ultra Short Fund as marketing, which does not rise to the level of investment advice. To rise to this level, under ERISA’s regulations (at 29 C.F.R. Section 2510.3-21(c)), the alleged fiduciary must:
(1) either advise the plan as to the value of assets, or make recommendations to the plan as to the advisability of investing in, purchasing, or selling assets; and
(2) either (a) have discretionary authority or control with respect to the purchase or sale of the plan’s assets, or (b) provide the advice or recommendations in (1) to the plan on a regular basis pursuant to a mutual agreement, arrangement or understanding with the plan under which the alleged fiduciary’s services will serve as a primary basis for investment decisions with respect to the plan’s assets, and that the advice or recommendations will be individualized.
Here, focusing on prong (2), the plaintiffs have not shown that Wachovia has the authority or control required in (a), or that the agreement, arrangement or understanding in (b) exists. Thus, Wachovia’s “marketing” does not rise to the level of or otherwise constitute investment advice.