ILNews

Judges affirm AUL Insurance owed no fiduciary duty to 401(k) plan

Back to TopCommentsE-mailPrintBookmark and Share

The 7th Circuit Court of Appeals has ruled in favor of an insurance company on a 401(k) plan trustee’s lawsuit that the insurance company's revenue-sharing practices breached a fiduciary duty under the Employment Retirement Income Security Act of 1974.

“This case presents a challenge to the practice known in the 401(k) services industry as ‘revenue sharing’– an arrangement allowing mutual funds to share a portion of the fees that they collect from investors with entities that provide services to the mutual funds, the investors, or both. … As the existence and extent of revenue sharing has become more widely known, some have expressed concern that the practice unduly benefits mutual funds and 401(k) service providers to the detriment of plan participants. This concern has fueled a number of lawsuits alleging that the practice violates the Employee Retirement Income Security Act of 1974 (ERISA),” Judge Diane Wood wrote in Robert Leimkuehler, as trustee of and on behalf of the Leimkuehler Inc. Profit Sharing Plan, and on behalf of all others similarly situated v. American United Life Insurance Co., 12-1081, 12-1213, & 12-2536.

Leimkuehler Inc. operates a 401(k) plan for its employees and American United Life Insurance Co. provides services to the plan. Plan participants’ contributions in mutual funds are deposited into a separate account that AUL owns and controls. AUL uses the funds in that account to invest in whatever mutual funds the plan participants have selected.

Robert Leimkuehler as trustee sued alleging AUL’s revenue-sharing practices breached a fiduciary duty to the plan under ERISA. The District Court granted AUL’s motion for summary judgment, finding AUL didn’t owe any fiduciary responsibility to the plan with respect to its revenue-sharing practices and that it wasn’t a “functional fiduciary” under 29 U.S.C. Section 1002(21)(A).

“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),” Wood wrote.

The judges also noted that AUL’s control over the separate account can support a finding of fiduciary duty only if Leimkuehler’s claims arise from AUL’s handling of the separate account.

“They do not. As we noted earlier and as Leimkuehler concedes, AUL selects share classes and decides how much it will receive in revenue sharing when it designs its investment-options menu. Those steps occur well before a Plan participant deposits her contributions in the separate account and directs AUL where to invest those contributions. Because the actions Leimkuehler complains of do not implicate AUL’s control over the separate account, the separate account does not render AUL a fiduciary under the circumstances of this case,” Wood wrote.

The judges also affirmed the denial of AUL’s motion for attorney fees or costs under ERISA or under the Federal Rule of Civil Procedure 54(d).
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Hail to our Constitutional Law Expert in the Executive Office! “What you’re not paying attention to is the fact that I just took an action to change the law,” Obama said.

  2. What is this, the Ind Supreme Court thinking that there is a separation of powers and limited enumerated powers as delegated by a dusty old document? Such eighteen century thinking, so rare and unwanted by the elites in this modern age. Dictate to us, dictate over us, the massess are chanting! George Soros agrees. Time to change with times Ind Supreme Court, says all President Snows. Rule by executive decree is the new black.

  3. I made the same argument before a commission of the Indiana Supreme Court and then to the fedeal district and federal appellate courts. Fell flat. So very glad to read that some judges still beleive that evidentiary foundations matter.

  4. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  5. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

ADVERTISEMENT