Santomenno Ex Rel. John Hancock Trust v. John Hancock Life Insurance Co. (U.S.A)
768 F.3d 284
| 3rd Cir. | 2014Background
- Participants in two 401(k) plans invested through group variable annuity contracts John Hancock provided; John Hancock created a "Big Menu" of investment options (mostly John Hancock funds) from which plan trustees selected a "Small Menu" for participants.
- Participants paid three layers of fees: an Administrative Maintenance Charge, a Sales & Service (S&S) fee (alleged to be revenue to John Hancock), and underlying mutual-fund 12b-1 fees; the combined fees were alleged excessive.
- John Hancock retained contractual authority to assemble/change the Big Menu, replace underlying funds, and select share classes; trustees, however, had final authority to pick Small Menu options and could reject contract changes and terminate without penalty.
- John Hancock offered a Fiduciary Standards Warranty (FSW) that promised indemnification for certain trustee selections but disclaimed that John Hancock was a fiduciary; it also ran monitoring programs (Fund Check/Scorecard) and could recommend replacements.
- Participants sued under ERISA alleging John Hancock breached fiduciary duties by charging excessive fees; the district court dismissed for lack of fiduciary status, and the Third Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether John Hancock was an ERISA fiduciary under §1002(21)(A)(i) for exercising discretionary authority over plan management (product design/Big Menu composition) | John Hancock’s control over the Big Menu and fee structure made it a functional fiduciary | Trustees retained final authority to select Small Menu items and to accept/reject contract terms, so John Hancock lacked discretionary plan-management authority | Not a fiduciary for Big Menu/product-design decisions; trustees’ final authority defeats fiduciary status |
| Whether John Hancock was a fiduciary under §1002(21)(A)(ii) for rendering investment advice for a fee | John Hancock’s monitoring and recommendations and its contractual relationship amounted to investment advice | DOL regulation requires a five‑factor showing (mutual agreement, regularity, individualized advice, etc.); contracts disclaim advisory status, so no investment‑advice fiduciary | Not an investment‑advice fiduciary; plaintiffs failed to plead the five regulatory factors and contracts show no mutual advisory understanding |
| Whether monitoring (Fund Check) or authority to substitute funds/share classes created fiduciary status tied to fee claims | Monitoring and unilateral substitution authority demonstrate discretionary control and a nexus to alleged excessive fees | Monitoring alone does not change who has decision authority; substitution power was subject to notice and trustees could reject changes or terminate | Monitoring/substitution did not create fiduciary status here; no sufficient nexus or exercised discretion over the challenged conduct |
| Secretary (amicus) non‑exercise and plan‑administrator theories (including §1002(21)(A)(iii)) | John Hancock’s retained authority (even if unused) and administrative functions made it a fiduciary | Non‑exercise theory is unworkable; §(iii) and asset‑control arguments were waived or unsupported on these facts | Rejected: non‑exercise theory and new administrator/asset‑control arguments fail or were waived |
Key Cases Cited
- Mertens v. Hewitt Associates, 508 U.S. 248 (1993) (ERISA is a comprehensive statute framing fiduciary duties)
- LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248 (2008) (recognized prevalence of defined-contribution plans and remedies for losses)
- Pegram v. Herdrich, 530 U.S. 211 (2000) (functional test: fiduciary status arises only when acting in an administrative, managerial, or advisory capacity)
- Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) (service providers who lack contractual authority to control plan investment mix are not fiduciaries for those selections)
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (service providers negotiating at arm’s length do not assume fiduciary duties for contract terms trustees may accept or reject)
- Leimkuehler v. American United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013) (selecting funds/share classes and maintaining separate accounts, standing alone, do not create fiduciary duties absent claims tied to those account management actions)
- Thomas, Head & Griesen Employees Trust v. Buster, 24 F.3d 1114 (9th Cir. 1994) (all five DOL regulatory factors are required to find investment‑advice fiduciary status)