Seventh Circuit Rules 401K Provider Not a Fiduciary Under ERISA

Leimkuehler v. American United Life Ins. Co. 7th Cir. Apr. 16, 2013

In this case, the practice involved plan participants who invested in mutual funds through a service provider. The use of the service provider allowed the plan participants to indirectly invest in mutual funds by placing their investment into a separate account that was controlled by the service provider. The service provider received revenue sharing payments from the selected mutual funds, for its administrative services. The plan trustee sued the service provider alleging that its revenue-sharing practices constituted a breach of fiduciary duty under ERISA. The district court granted summary judgment to the service provider finding that it had no fiduciary obligations with respect to its revenue sharing practices and therefore was not a functional fiduciary under ERISA. The court held that (1) We therefore confirm that, standing alone, the act of selecting both funds and their share classes for inclusion on a menu of investment options offered to 401(k) plan customers does not transform a provider of annuities into a functional fiduciary under Section 1002(21)(A)(i); (2) the 7th Circuit found that while the service provider was a fiduciary because of its management and control of the separate accounts, “the control over the separate account can support a finding of fiduciary status only if [the plan’s] claims for breach of fiduciary duty arise from [the service provider’s] handling of the separate account”; and (3) that Section 1002(21)(A) is limited to circumstances where the individual actually exercises some authority and so a decision not to exercise a contractual right to substitute different mutual funds for the plan does not make it a fiduciary.

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