22 F. Supp. 3d 72
D. Mass.2014Background
- GSI (plan sponsor and named fiduciary) sues MassMutual, its plan service provider, alleging MassMutual received revenue sharing payments (RSPs) from third‑party mutual funds that violated ERISA fiduciary duties and the prohibited‑transactions rule.
- MassMutual has provided recordkeeping, designed an Overall Menu of investment options, and owns Separate Investment Accounts (SIAs) that hold the mutual fund investments offered to plan participants under a Group Annuity Contract (GAC).
- The GAC gives MassMutual exclusive ownership/control of SIA assets and the contractual right to set SIA management fees up to 1.0% annually and to add/delete/substitute funds on the Overall Menu.
- MassMutual receives compensation from a mix of plan/participant fees, SIA management fees, and RSPs under Participation/Services Agreements with mutual funds; parties dispute the existence/timing of disclosures and whether RSPs were used to offset plan charges.
- Factual disputes exist about (a) whether MassMutual actually changed SIA fees or retained unilateral discretion to set/adjust compensation, (b) whether it exercised its contractual power to substitute funds on the Plan Menu, and (c) whether RSPs were applied as offsets to plan fees.
- Procedural posture: MassMutual moved for summary judgment on whether it is a “functional fiduciary” under ERISA; the court denied the motion as to fiduciary status tied to compensation-setting and SIA fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MassMutual is a functional fiduciary under 29 U.S.C. §1002(21)(A)(i) (management/disposition of plan assets) with respect to revenue sharing | MassMutual exercised discretionary authority to set SIA management fees, draw fees from SIAs, and thus controlled compensation tied to RSPs | MassMutual contends its conduct that creates fiduciary duties is unrelated to receipt of RSPs and it never altered SIA fees | MassMutual is a functional fiduciary to the extent it exercises discretion to set its compensation via SIA fees and offsets RSPs against those fees (genuine factual disputes preclude summary judgment) |
| Whether MassMutual is a functional fiduciary under §1002(21)(A)(iii) (plan administration) | MassMutual’s administrative acts (reinvesting dividends, issuing payments, and controlling fee factors) amount to discretionary administration implicating fiduciary status | MassMutual argues “administration” is limited to eligibility/benefit determinations and not investment/compensation decisions | Court finds subsection (iii) implicated to the extent MassMutual has discretionary control over fee‑governing factors after contracting to administer the Plans |
| Whether the right to add/delete/substitute funds on the Overall Menu makes MassMutual a fiduciary for Plan Menu investment choices | MassMutual retained contractual authority to change the Overall Menu and thereby influence RSPs and plan options | MassMutual points out Plan had the final say in practice and MassMutual did not exercise substitution power over the Plan Menu | Court rejects fiduciary status under §(i) for fund‑substitution because MassMutual did not exercise that authority regarding GSI’s Plan Menu and the “to the extent” nexus is lacking |
| Burden to justify RSPs if fiduciary established | GSI argues RSPs were pay‑to‑play and not bona fide offsets to plan fees | MassMutual says RSPs offset fees and were disclosed and used to reduce plan charges | If fiduciary status is found, factual disputes remain; court notes precedent shifting burdens to defendant to prove exemptions or that payments were for non‑plan transactions, but did not resolve the question on summary judgment |
Key Cases Cited
- Beddall v. State St. Bank & Tr. Co., 137 F.3d 12 (1st Cir. 1998) (defines functional fiduciary and emphasizes discretionary authority touchstone)
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (power to limit fund universe alone does not automatically create fiduciary status where plan has final say)
- Leimkuehler v. Am. United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013) (service provider’s reservation of substitution rights insufficient where power not exercised; addresses share‑class selection theory)
- Varity Corp. v. Howe, 516 U.S. 489 (1996) (ERISA “administration” construed in light of plan purposes and fiduciary duties derive from trust law)
- Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir. 1987) (burden shifts to defendant to prove exemption or that compensation was for non‑plan transactions)
- Bjorkedal v. Trustees, 516 F.3d 719 (8th Cir. 2008) (‘‘exercise’’ of authority requires affirmative act; omissions may not suffice for fiduciary status)