Compliance February 11, 2008

Law Firm Gets Court's Nod to Proceed with Fee Lawsuit

February 11, 2008 (PLANSPONSOR.com) - Because John Hancock Life Insurance Co. could be judged to have been a fiduciary in a Troy, Michigan, law firm's 401(k) plan, the plan's trustee can continue with his fiduciary breach excessive fee lawsuit, a federal judge has ruled.
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U.S. District Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts ruled that Hancock could be found to be an Employee Retirement Income Security Act (ERISA) fiduciary because it had the ability to substitute mutual funds within the menu of investments it provided for the plan. Gorton rebuffed Hancock’s request to throw out the case.

Trustee John Charters sued Hancock on behalf of the Charters, Heck, O’Donnell & Petrulis P.C. 401(k) Plan, alleging the provider charged excessive fees and improperly retained revenue sharing payments.Gorton also approved Charters’ request to pursue his ERISA claim   on behalf of all plan trustees that have used the services of John Hancock.

According to the ruling, Charters purchased a variable annuity contract from John Hancock in April 2005. Under the contract, John Hancock managed assets in an account maintained by John Hancock and invested the assets and credited or charged any income, gains, or losses from investment of the assets to the separate account.

John Hancock established a variety of investment options as part of the contract, including a “guaranteed interest account” and a variety of mutual fund investment options. Under the contract, John Hancock had the right to substitute funds, trusts, or portfolios for the mutual funds it offers, the ruling said.

According to the court, John Hancock charged a fixed participant fee and an asset charge based on the amount of assets held in the separate account to compensate Hancock for performing recordkeeping services. Under the contract, John Hancock also levied an annual investment charge for investments in each sub-account.

In asking the court to dismiss the lawsuit, John Hancock argued that it did not qualify as an ERISA fiduciary. In addition, John Hancock argued that Charters did not have standing to represent the other 401(k) plans for which he did not serve as a trustee.

The ruling in Charters v. John Hancock Life Insurance Co.,   D. Mass., No. 07-11371-NMG, 12/21/07 is here .

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