Bugielski v. AT&T Servs.
| Docket Number | 21-56196 |
| Decision Date | 04 August 2023 |
| Parties | ROBERT J. BUGIELSKI; CHAD S. SIMECEK, individually as participants in the AT and T Retirement Savings Plan and as a representatives of all persons similarly situated, Plaintiffs-Appellants, v. AT&T SERVICES, INC.; AT&T BENEFIT PLAN INVESTMENT COMMITTEE, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Argued and Submitted October 17, 2022 Portland, Oregon
Appeal from the United States District Court for the Central District of California Virginia A. Phillips, Chief District Judge, Presiding D.C. No. 2:17-cv-08106-VAP-RAO
John J. Nestico (argued), Schneider Wallace Cottrell Konecky LLP Charlotte, North Carolina; Todd M. Schneider and James A Bloom, Schneider Wallace Cottrell Konecky LLP, Emeryville California; Todd S. Collins and Ellen T. Noteware, Berger Montague PC, Philadelphia, Pennsylvania; Jason H. Kim Schneider Wallace Cottrell Konecky LLP, Los Angeles, California; Eric Lechtzin, Edelson Lechtzin LLP, Newtown, Pennsylvania; Shoham J. Solouki, Solouki Savoy LLP, Los Angeles, California; for Plaintiffs-Appellants.
Ashley E. Johnson (argued), Paulette Miniter, and Katie R. Talley, Gibson Dunn &Crutcher LLP, Dallas, Texas; Nancy G. Ross, Mayer Brown LLP, Chicago, Illinois; for Defendants-Appellees.
Before: Richard A. Paez and Bridget S. Bade, Circuit Judges, and Raner C. Collins, [*] District Judge.
The panel affirmed in part and reversed in part the district court's summary judgment in favor of the defendants in an ERISA class action brought by former AT&T employees who contributed to AT&T's retirement plan, a defined contribution plan.
Plaintiffs brought this class action against the Plan's administrator, AT&T Services, Inc., and the committee responsible for some of the Plan's investment-related duties, the AT&T Benefit Plan Investment Committee (collectively, "AT&T"). Plaintiffs alleged that AT&T failed to investigate and evaluate all the compensation that the Plan's recordkeeper, Fidelity Workplace Services, received from mutual funds through BrokerageLink, Fidelity's brokerage account platform, and from Financial Engines Advisors, L.L.C. Plaintiffs alleged that (1) AT&T's failure to consider this compensation rendered its contract with Fidelity a "prohibited transaction" under ERISA § 406, (2) AT&T breached its fiduciary duty of prudence by failing to consider this compensation, and (3) AT&T breached its duty of candor by failing to disclose this compensation to the Department of Labor.
The panel reversed the district court's grant of summary judgment on the prohibited-transaction claim. Relying on the statutory text, regulatory text, and the Department of Labor's Employee Benefits Security Administration's explanation for a regulatory amendment, the panel held that the broad scope of § 406 encompasses arm's-length transactions. Disagreeing with other circuits, the panel concluded that AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, caused the Plan to engage in a prohibited transaction. The panel remanded for the district court to consider whether AT&T met the requirements for an exemption from the prohibited-transaction bar because the contract was "reasonable," the services were "necessary," and no more than "reasonable compensation" was paid for the services. Specifically, the panel remanded for the district court to consider whether Fidelity received no more than "reasonable compensation" from all sources, both direct and indirect, for the services it provided the Plan.
For similar reasons, the panel also reversed the district court's summary judgment on the duty-of-prudence claim. The panel concluded that, as a fiduciary, AT&T was required to monitor the compensation that Fidelity received through BrokerageLink and Financial Engines. The panel remanded for the district court to consider the duty-of-prudence claim under the proper framework in the first instance.
On the reporting claim, the panel affirmed as to the compensation from BrokerageLink and reversed as to the compensation from Financial Engines. The panel concluded that AT&T adequately reported the compensation from Financial Engines on its Form 5500s with the Department of Labor, but it did not adequately report the compensation from Financial Engines because an alternative reporting method for "eligible indirect compensation" was not available.
The Employee Retirement Income Security Act of 1974 ("ERISA") establishes standards for employee benefit plans to protect the interests of plan participants. See 29 U.S.C. § 1001. To that end, ERISA imposes a duty of prudence upon those who manage employee retirement plans, prohibits plans from engaging in transactions that could harm participants' interests, and mandates disclosures to the United States Department of Labor.
Robert Bugielski and Chad Simecek ("Plaintiffs") are former AT&T employees who contributed to AT&T's retirement plan ("the Plan"), a defined contribution plan. They brought this class action against the Plan's administrator, AT&T Services, Inc., and the committee responsible for some of the Plan's investment-related duties, the AT&T Benefit Plan Investment Committee (collectively, "AT&T"). Plaintiffs allege that AT&T failed to investigate and evaluate all the compensation that the Plan's recordkeeper, Fidelity Workplace Services ("Fidelity"), received in connection with that role. Plaintiffs argue that (1) AT&T's failure to consider this compensation rendered its contract with Fidelity a "prohibited transaction" under ERISA § 406, (2) AT&T breached its duty of prudence by failing to consider this compensation, and (3) AT&T improperly failed to disclose this compensation to the Department of Labor.
The district court granted summary judgment in AT&T's favor. It concluded that Plaintiffs' prohibited-transaction and duty-of-prudence claims failed because AT&T had no obligation to consider this compensation. It also concluded that AT&T was not required to disclose this compensation on its reports to the Department of Labor.
Because we conclude that AT&T was required to consider this compensation and report a portion of it, we affirm in part, reverse in part, and remand for further proceedings.
Fidelity has served as the Plan's recordkeeper since 2005. As recordkeeper, Fidelity performs various administrative functions, such as enrolling new participants in the Plan maintaining participants' accounts, and processing participants' contributions to the Plan. In exchange for these services, Fidelity charges the Plan a flat fee for each participant. Fidelity also offers other services to participants on an as-needed basis, including administering loans and processing withdrawals. Fees for these transactions are charged directly to the Plan participant requesting the service.
In approximately 2012, AT&T amended its contract with Fidelity to provide Plan participants with access to Fidelity's brokerage account platform, BrokerageLink. For a fee, BrokerageLink allows participants to invest in mutual funds not otherwise available through the Plan. These fees are based on a brokerage commission schedule that Fidelity provides to participants. For example, a participant might pay a $75 fee to purchase shares of a particular fund.
In addition to the fees it receives from participants, Fidelity receives "revenue-sharing fees" from the mutual funds available through BrokerageLink. For example, if a participant invested in a mutual fund offered through BrokerageLink, the fund would pay Fidelity a percentage of the amount the participant invested. Participants have invested billions of dollars in these mutual funds, resulting in millions of dollars in revenue-sharing fees for Fidelity.
In 2014, AT&T contracted with Financial Engines Advisors, L.L.C. ("Financial Engines"), to provide optional investment advisory services to Plan participants. For an asset-based fee, Financial Engines would manage a participant's investments.[1]
However, to do so, Financial Engines needed access to participants' accounts. Accordingly, AT&T amended its contract with Fidelity to provide Financial Engines with this access. And in its contract with Financial Engines, AT&T authorized Financial Engines to contract directly with Fidelity to secure the requisite access. Financial Engines and Fidelity then entered into a separate agreement under which Fidelity received a portion of the fees Financial Engines earned from managing participants' investments. The compensation Fidelity received from Financial Engines was significant; in some years, Fidelity received approximately half of the total fees that Financial Engines charged participants, resulting in millions of dollars in compensation for Fidelity.
In their third amended complaint, Plaintiffs allege that AT&T violated several ERISA provisions by failing to consider the significant compensation that Fidelity received through BrokerageLink and Financial Engines.
Plaintiffs first allege that AT&T's amendment of its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines was a prohibited transaction under § 406(a)(1)(C). See 29 U.S.C. § 1106. Section 406 "prohibits fiduciaries from involving the plan and its assets in certain kinds of business deals," Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996) and § 406(a)(1)(C) specifically prohibits the "furnishing of goods, services, or facilities" between a plan and a "party in interest," 29 U.S.C. § 1106(a)(1)(C).
Although ERISA § 408 exempts certain transactions from § 406's reach, Plaintiffs argue that none of those exemptions applies to the...
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