On July 24, the U.S. District Court for the District of New Jersey dismissed (for a second time) a breach of fiduciary duty case brought by participants in various 401(k) plans against John Hancock and its affiliates. Essentially, the plaintiffs alleged that John Hancock breached its fiduciary duty to them (and other participants in the 401(k) plans) by:
• charging excessive service fees (including sales and service fees, 12b-1 fees and investment advisor fees) to the 401(k) plans;
• improperly receiving revenue sharing payments in connection with the plans; and
• improperly including the firm’s JHT-Money Market Trust in its lineup of funds from which the 401(k) plans’ trustees could choose investment options.
The court held that John Hancock was not a fiduciary with respect to any of the alleged actions. Specifically, the court addressed three key issues:
• Excessive Service Fees. John Hancock “owes no fiduciary duty with respect to the negotiation of its fee[s],” which were fully disclosed to the plans’ trustees, the court said. As such, John Hancock owed no fiduciary duty to the plaintiffs with respect to its fees.
• Revenue Sharing. Service providers, such as John Hancock, “do not become fiduciaries merely by receiving shared revenue, especially when the total expense of the investment was accurately disclosed to plan participants,” the court noted, pointing out that John Hancock fully disclosed its fees, along with the total expenses associated with each investment option, to the plans’ trustees and participants. “The fact that John Hancock and the mutual funds chose to allocate those fees in particular way after the fees were paid does not make John Hancock a fiduciary,” the court found.
• Selection of the JHT Money Market Trust. A service provider, such as John Hancock, “does not incur fiduciary status simply because it offers a ‘big menu’ of investment options from which a trustee selects a ‘small menu’ for her plan,” the court said. As has been done in other 401(k) fees cases, the court pointed out that it was the plan trustees, and not John Hancock, who had the final say in which investment options would be included in their plans’ fund lineups. As such, the court concluded that John Hancock was not a fiduciary with respect to selecting JHT Money Market Trust for inclusion in any of the plans because John Hancock did not have “ultimate authority over which investments were included in the plans.”
At this point, it is unknown whether the plaintiffs will appeal the court’s decision.
Ronald J. Triche, Esq., APM, is ASPPA’s Assistant General Counsel and Director of Government Affairs.
