Compliance August 21, 2009

Court Keeps 404(c) Shield in Place for Trustee

August 21, 2009 (PLANSPONSOR.com) - A retirement plan trustee was entitled to invoke safe-harbor protection against fiduciary breach allegations leveled by two 401(k) participants in connection with wrongdoing charges against the plan's investment adviser.
Reported by

U.S. District Judge David A. Katz of the U.S. District Court for the Northern District of Ohio ruled that UMB Bank had met the legal requirements for Section 404(c) under the Employee Retirement Income Security Act (ERISA).

Specifically, Katz found that:

  • plan documents clearly indicated the plan’s intent to invoke Section 404(c);
  • the participants had independent control over their accounts and were provided sufficient information to establish the opportunity to exercise that control; and
  • participants could invest in any asset that was legally permitted and administratively feasible.

Plaintiffs filed the suit after finding out that their accounts had been hit with a significant asset loss because of the activities of the adviser whom both had appointed to manage their accounts.Among other things, the participants claimed that the trustee breached its fiduciary duty by withholding material nonpublic information that it must have obtained in the trustee’s own lawsuit against the adviser and by continuing to process allegedly forged investment directives without consulting or warning them.

In response to the trustee invoking the 404(c) defense, participants claimed the defense should have been denied to the trustee for withholding information about the adviser’s activities. Katz rejected that argument, saying if UMB had actively concealed the information, it could not have used the 404(c) defense .

The ruling is available here .

«