While the retirement world continues to wait for some final clarification on the Department of Labor’s ongoing attempts to establish the definition of fiduciary status under ERISA, a few recent cases demonstrate the tough time DoL will likely have in finalizing its controversial rules.
According to attorney Marcia S. Wagner, in an opinion published in 401(k) Advisor, despite DoL attempts to reinforce the weight it began to throw around as part of Advisory Opinion 97-16A, several court decisions have not entirely served to support Labor’s weighty stance.
Recently, the case Hecker v. Deere & Co. found that a plan service provider does not act as a fiduciary just because it presents a small range of pre-picked investment options to an independent fiduciary (a plan sponsor, for instance). If the final decision stays remains with the plan sponsor and if the sponsor is given at least 60 days notice by the insurer about any possible plan changes, the court reasoned that would be enough to ensure that a platform provider would not be treated as a fiduciary.
Similarly, the case of Liemkuehler v. American United Life Insurance Company, the Seventh Court of Appeals stated it did not support the DoL’s stance that ERISA’s description of functional fiduciary status is limited to occasions where those potential fiduciaries actually exercise some authority. As part of that case, an insurer opting to substitute less expensive funds for an employer’s plan was not necessarily seen as a fiduciary decision.
At the same time, the Seventh Circuit also shot down arguments that simply providing a range of funds and share classes for inclusion in a 401(k) plan does not immediately imply fiduciary status for an insurance company offering annuities – the plan trustee who launched the lawsuit was free at any time to seek a better deal if he felt that the insurer’s options were too expensive.
Wagner says the DoL will have to act very carefully as it seeks to create further blanket legislation, with potential liability at every turn.
