Court: DB Participant Can't Sue for Excessive Fees

November 1, 2007 ( - The U.S. District Court for the Northern District of Iowa ruled that a defined benefit plan participant had no standing to sue the plan's fiduciaries for allegedly paying excessive investment fees because the plan was overfunded and he suffered no losses.

Randal McCullough worked for Aegon subsidiary Life Investors Insurance Co. from October 1996 to June 2005 and participated in a defined benefit plan sponsored by Aegon.

McCullough argued in the suit that   the company and its board of directors breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) and engaged in transactions prohibited by ERISA by causing the plan to purchase investment products and services from Aegon and its subsidiaries. McCullough alleged that the plan paid Aegon and its subsidiaries millions of dollars in investment management fees.

Chief U.S. District Judge Linda R. Reade, in granting Aegon’s motions to dismiss, said that McCullough had no standing “because the loss here, that is, the millions of dollars in investment management fess paid to AEGON USA and subsidiaries and affiliates, did not harm Plaintiff’s interests in or benefits under the Pension Plan.”

Reade said that the loss in the pension plan surplus, which McCullough claims resulted from conduct alleged in the prohibited transactions count and breach of duties count, only constituted a loss to the plan sponsor, not to McCullough.

Citing a previous decision by the 8 th  U.S. Circuit Court of Appeals, Aegon argued that McCullough lacked standing because the plan had a surplus, the company was financially sound and the plan never failed to meet its obligations.

McCullough argued that the court dramatically undercut ERISA’s protection of defined benefit plans from fiduciary breach because he suffered no loss due to the fact that the plan was overfunded.

“Even though most fiduciaries who breach their statutory obligations to overfunded defined benefit plans are effectively immunized from liability, the Secretary of Labor and plan fiduciaries can seek redress for a breach of a fiduciary duty that is owed to an overfunded defined benefit plan,” the court noted.

The case is McCullough v. AEGON USA Inc.,N.D. Iowa, No. 06-CV-0068-LRR, 10/30/07.