Great-West has staved off an excessive fee suit regarding its management of a guaranteed investment contract in a 401(k) plan.
The suit was filed in 2015 by plaintiff John Teets, a participant in the Farmers’ Rice Cooperative 401(k) Savings Plan, which had contracted with Great-West for recordkeeping, administrative and investment services. The suit, which had been granted class action status on behalf of all plans and participants invested in the particular fund, alleged that Great-West (the defendant) acted as an ERISA fiduciary with respect to the fund because it exercised authority or control over the management of disposition of plan assets, specifically the Great-West Key Guaranteed Portfolio Fund, a fund that (as the court notes), “as the Fund’s full name suggests, is operated by Defendant.”
There were three specific claims by the plaintiff:
- that the defendant breached fiduciary duties by setting the fund’s interest rate artificially low and charging excessive fees in order to increase its own profits;
- that the defendant engaged in prohibited fiduciary self-dealing by dealing with the fund for its own interest and for its own account; and
- that the defendant, as a fiduciary of the plans, caused the plans to be entered into a contractual arrangement with the defendant under which the defendant also acted as a party in interest with respect to the plan, and that the defendant received unreasonable compensation in violation of ERISA’s rules governing party-in-interest transactions.
In Teets v. Great-West Life & Annuity Ins. Co. (D. Colo., No. 1:14-cv-02330-WJM-NYW, order granting summary judgment to defendant 12/14/17), Judge William J. Martinez of the U.S. District Court for the District of Colorado noted that at the center of the first two claims was an allegation that Great-West “failed to comply with ERISA’s requirements for fiduciaries of plan assets.”
In his ruling, Martinez noted that Great-West’s primary summary judgment argument is that it is not a fiduciary with respect to the fund because ERISA contains an exemption for a “guaranteed benefit policy” (GBP). That exemption provides that, in the case of a plan to which a guaranteed benefit policy is issued by an insurer, “the assets of such plan shall be deemed to include such policy, but shall not, solely by reason of the issuance of such policy, be deemed to include any assets of such insurer.” The court noted that the defendant believed the fund in question qualified for this exemption, and while the court concurred, it went on to note that Great-West “vastly overstates the scope of the GBP exemption,” and thus that the GBP status was irrelevant.
Specifically (with regard to the GBP definition, the court acknowledged that “it may take several readings to understand this opaque language”), the court said that the GBP exception “essentially prohibits a plaintiff from claiming that the insurer breached its fiduciary duty by making imprudent choices when investing plan participants’ contributions,” but cautioned that “the contract by which the insurer obtained those contributions remains a part of the plan, and the insurer may still have fiduciary responsibilities…”
However, after running through a recitation of several cases it found on point, the court ultimately agreed with Great-West that it was “not an ERISA fiduciary as to its own compensation because it does not control what its plan-related compensation will be,” even though it did set the credited rates. Quoting from another opinion, the court’s opinion noted that “Its compensation (if any) depends on participants investing their accounts at those Credited Rates, and—because the Credited Rates are stated in advance and participants are free to withdraw their investments at any time without penalty—participants can reject a Credited Rate before it ever applies.”
As for the third claim, Judge Martinez wrote, “an ERISA plaintiff cannot rely solely on the knowledge that would satisfy a fiduciary’s liability for a prohibited transaction to likewise hold a nonfiduciary party in interest liable for that transaction. Rather, the plaintiff must show that the defendant knew or should have known that the transaction violated ERISA.” He went on to state that not only had the plaintiff here made no attempt to establish that, but had “continually asserted only that the undisputed facts show Defendant had the basic knowledge necessary to make a fiduciary (emphasis ours) liable.”
Ultimately, since Great-West was found not to be an ERISA fiduciary, all of the claims were rejected by the court, which granted summary judgment to the defendants.