ROBERT BUGIELSKI, ET AL V. AT&T SERVICES, INC., ET AL, No. 21-56196 (9th Cir. 2023)
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Plaintiffs brought this class action against the Plan’s administrator, AT&T Services, Inc., and the committee responsible for some of the Plan’s investment-related duties, the AT&T Benefit Plan Investment Committee (collectively, “AT&T”). Plaintiffs alleged that AT&T failed to investigate and evaluate all the compensation that the Plan’s recordkeeper, Fidelity Workplace Services, received from mutual funds through BrokerageLink, Fidelity’s brokerage account platform, and from Financial Engines Advisors, L.L.C. Plaintiffs alleged that (1) AT&T’s failure to consider this compensation rendered its contract with Fidelity a “prohibited transaction” under ERISA Section 406, (2) AT&T breached its fiduciary duty of prudence by failing to consider this compensation, and (3) AT&T breached its duty of candor by failing to disclose this compensation to the Department of Labor.
The Ninth Circuit affirmed in part and reversed in part the district court’s summary judgment in favor of Defendants. The panel reversed the district court’s grant of summary judgment on the prohibited transaction claim. Relying on the statutory text, regulatory text, and the Department of Labor’s Employee Benefits Security Administration’s explanation for a regulatory amendment, the panel held that the broad scope of Section 406 encompasses arm’s-length transactions. The panel held that the broad scope of § 406 encompasses arm’s-length transactions. Disagreeing with other circuits, the panel concluded that AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, caused the Plan to engage in a prohibited transaction. The panel remanded for the district court to consider whether AT&T met the requirements for an exemption from the prohibited transaction bar.
Court Description: Employee Retirement Income Security Act The panel affirmed in part and reversed in part the district court’s summary judgment in favor of the defendants in an ERISA class action brought by former AT&T employees who contributed to AT&T’s retirement plan, a defined contribution plan.
Plaintiffs brought this class action against the Plan’s administrator, AT&T Services, Inc., and the committee responsible for some of the Plan’s investment-related duties, the AT&T Benefit Plan Investment Committee (collectively, “AT&T”). Plaintiffs alleged that AT&T failed to investigate and evaluate all the compensation that the Plan’s recordkeeper, Fidelity Workplace Services, received from mutual funds through BrokerageLink, Fidelity’s brokerage account platform, and from Financial Engines Advisors, L.L.C. Plaintiffs alleged that (1) AT&T’s failure to consider this compensation rendered its contract with Fidelity a * The Honorable Raner C. Collins, United States District Judge for the District of Arizona, sitting by designation. “prohibited transaction” under ERISA § 406, (2) AT&T breached its fiduciary duty of prudence by failing to consider this compensation, and (3) AT&T breached its duty of candor by failing to disclose this compensation to the Department of Labor.
The panel reversed the district court’s grant of summary judgment on the prohibited-transaction claim. Relying on the statutory text, regulatory text, and the Department of Labor’s Employee Benefits Security Administration’s explanation for a regulatory amendment, the panel held that the broad scope of § 406 encompasses arm’s-length transactions. Disagreeing with other circuits, the panel concluded that AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, caused the Plan to engage in a prohibited transaction. The panel remanded for the district court to consider whether AT&T met the requirements for an exemption from the prohibited-transaction bar because the contract was “reasonable,” the services were “necessary,” and no more than “reasonable compensation” was paid for the services. Specifically, the panel remanded for the district court to consider whether Fidelity received no more than “reasonable compensation” from all sources, both direct and indirect, for the services it provided the Plan.
For similar reasons, the panel also reversed the district court’s summary judgment on the duty-of-prudence claim. The panel concluded that, as a fiduciary, AT&T was required to monitor the compensation that Fidelity received through BrokerageLink and Financial Engines. The panel remanded for the district court to consider the duty-of- prudence claim under the proper framework in the first instance.
On the reporting claim, the panel affirmed as to the compensation from BrokerageLink and reversed as to the compensation from Financial Engines. The panel concluded that AT&T adequately reported the compensation from Financial Engines on its Form 5500s with the Department of Labor, but it did not adequately report the compensation from Financial Engines because an alternative reporting method for “eligible indirect compensation” was not available.
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