Pension & Benefits News Retirement plan TPAs performing professional functions were not ERISA fiduciaries
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Tuesday, October 20, 2020

Retirement plan TPAs performing professional functions were not ERISA fiduciaries

By Pension and Benefits Editorial Staff

Third-party administrators hired by the trustees of a company’s pension plans were not ERISA fiduciaries: because they performed their usual professional functions and did not exercise discretionary authority, the U.S. Court of Appeals in San Francisco (CA-9) has ruled. To the extent the trustees have claims against the TPAs for malfeasance, those claims are common law negligence or malpractice, not ERISA breach of fiduciary duty.

Affirming the trial court’s summary judgment award to the TPAs, the Ninth Circuit acknowledged that although the trustees and the TPAs entered into Engagement Agreements stating that the TPAs were not fiduciaries, whether one is a fiduciary turns on the activity in question, not the title of the person or entity. That said, fiduciary status requires the actual exercise of discretionary authority. In this instance, the trustees failed to demonstrate that the TPAs’ activities went beyond their ordinary advisory services.

The TPAs advised the trustees on the permissible contribution ranges for their retirement plans, but the trustees retained their final, independent judgment on how much to contribute. Similarly, while the TPAs prepared certain tax forms reflecting a necessary plan amendment, the trustees signed their forms and maintained sole authority to make changes to the plan.

Finally, the trustees’ allegation that the TPAs forced the trustees to terminate and roll over one of their profit-sharing plans failed because the TPAs never gave the trustees a directive, and never deprived the trustees of their discretion or final decision-making authority.

Attorney’s fees. The appellate court also agreed with the trial court that the TPAs were not entitled to an award of attorney’s fees. The trustees’ failure to prevail on the merits did not demonstrate culpability or bad faith, and a fee award would serve no deterrent purpose.

Source: Cheap Easy Online Traffic School v. Peter L. Huntley & Co., Inc. (CA-9).

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