Recently,  the United States District Court for the Western District of Pennsylvania granted a Motion to Dismiss, dismissing ERISA breach of fiduciary duty claims based on excessive recordkeeping fee allegations. The district court addressed the level of detail plaintiffs must provide to move an ERISA breach of fiduciary duty recordkeeping fee allegation from possible to plausible under Federal Rule of Civil Procedure 12(b)(6).

In Henrena Johnson and Barbara Demps v. The PNC Financial Services Group, Inc., The PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee, Plaintiffs were former PNC employees and 401(k) plan (“the Plan”) participants. On behalf of a putative class, Plaintiffs alleged that Defendant’s Administrative Committee fiduciaries improperly allowed the Plan to pay excessive administrative fees to Co-Defendant, The PNC Financial Services Group, Inc., from 2014-2018, for recordkeeping services. Plaintiffs claimed Defendants breached their fiduciary duties of prudence and loyalty.

Plaintiffs argued the increase in administrative fees from $85 to $90 per participant over four years reflected a lack of prudence and poor management of the Plan. Plaintiffs specifically compared the Plan’s $51-$57 annual recordkeeping fee (which was the majority of the administrative fee) with the average recordkeeping fee of $35 for smaller plans reported in The 401k Averages Book. Despite the downward trend of recordkeeping fees, Plaintiffs argued the Plan should have leveraged its size to obtain recordkeeping fees of $14-$21 per participant, per year. Plaintiffs also claimed the Administrative Committee failed to engage in a comparison or benchmarking of these fees.

The court reasoned that a “high fee may reflect imprudence even if the fee falls year-over-year, [but] the fact that the Plan’s recordkeeping fees trend downward for the period at issue points in the direction of prudence rather than imprudence.” Moreover, Plaintiffs compared the direct administrative fees and did not account for revenue sharing or indirect administrative fees paid by smaller plans. Indeed, when revenue sharing was considered, smaller plans typically paid significantly higher administrative fees per-participant. Thus, the court concluded that without additional detailed factual averments as to the Plan’s fee structure and services received in exchange for the fees charged, Plaintiffs’ allegations only raised a possibility of imprudence, insufficient to state a plausible claim for breach of fiduciary duty.

As to the claim of a breach of the duty of loyalty, the district court held that Plaintiffs had to offer more facts than their purported breach of prudence claims, recast as a loyalty claim. Plaintiffs merely pointed to the excessive administrative fees paid to The PNC Financial Services Group, Inc., arguing that because of the intertwined corporate relationships, this constituted a conflict of interest. Again, the court was unpersuaded and held the allegations stopped short of articulating a plausible claim, explaining that a valid claim must allege “something more” than a purported potential conflict of interest. Plaintiffs’ allegations permitted a reasonable inference that PNC received an incidental benefit, but that alone did not establish a plausible claim for breach of loyalty.

Count II (Failure to Monitor The Plan) and Count III (Participation in the Breach of Fiduciary Duty) were summarily dismissed as derivative and dependent upon Plaintiffs’ breach of fiduciary duty claim. The district court held these derivative Counts were untenable because the underlying breach of fiduciary duty claim was dismissed. The court granted leave to amend the Complaint in response to the Order, noting that the court’s order would convert to a dismissal with prejudice if no amendment was filed on or before August 17, 2021.

The case is Johnson v. The PNC Financial Services Group, Inc., The PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee, No. 2:20-01493-CCW (W.D. Pa. Aug. 3, 2021).

The Seventh Circuit ruled recently that ERISA does not preempt certain state law claims against directors and officers because ERISA’s text and purpose contemplate parallel corporate state-law liability against executives who act as “dual hat” fiduciaries.

In Halperin v. Richards, Plaintiffs were co-trustees of a Chapter 11 liquidating trust for Appvion, a paper company that filed for bankruptcy protection in 2017. Plaintiffs were given authority to pursue corporate law claims on Appvion’s behalf. Plaintiffs alleged that, while Appvion was in a financial freefall from 2012 to 2016, Appvion’s executives fraudulently misrepresented the company’s financial projections to inflate the company’s stock value, which was entirely owned by Appvion’s ERISA-covered Employee Stock Ownership Plan (the “Plan”). Allegedly, the inflated stock value lined the pockets of Appvion’s directors and officers whose salaries were tied to the stock’s valuation. Plaintiffs also alleged that this fraudulent scheme was aided and abetted by the Plan’s Trust Company (the Plan Trustee) and the Trustee’s retained independent appraiser, hired because of its expertise in stock valuation.

Plaintiffs brought state law claims against Appvion’s executives for breaching their corporate fiduciary duties and against the Trust Company and its retained independent appraiser for aiding and abetting those state law breaches. In the district court, all Defendants successfully moved to dismiss these state-law claims. They argued that their roles in the Plan’s valuations were governed by ERISA and that ERISA preempted all state corporate-law liability arising from the valuation process.

Plaintiffs appealed the district court’s motion to dismiss preemption ruling to the Seventh Circuit. The issue before the Court was whether Plaintiffs’ state law claims were preempted under ERISA, which preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA.

The Seventh Circuit reversed the dismissal against the executives but affirmed the dismissal against the Trust Company and its independent appraiser. The Court reasoned that ERISA did not preempt state law corporate claims against executives who serve dual roles as both corporate fiduciaries and ERISA fiduciaries because such state claims did not interfere with how Congress intended ERISA fiduciary duties to operate: Despite ERISA’s cornerstone “exclusive benefit rule” (an exclusive duty of loyalty causing fiduciaries to act solely in the interest of ERISA beneficiaries), ERISA explicitly allows for individuals to serve as corporate insiders and ERISA fiduciaries and, therefore, contemplates parallel state-law liability against executives wearing these “dual hats.” Also important to the Panel was the concept that as to these state-law claims, Plaintiffs were not circumventing ERISA’s remedial scheme. As to these claims, these Plaintiffs have no rights to bring ERISA claims as participants, fiduciaries, and/or beneficiaries, making ERISA preemption inappropriate because it would leave Plaintiffs without a remedy. However, unlike the Defendant dual-hat executives, ERISA does not contemplate single-hat fiduciaries (e.g., the Trustee) owing other duties of loyalty to a corporation. Accordingly, the Court affirmed dismissal of the state law claims against the Trust Company.

The exclusive benefit rule’s preemptive force also protected the Trust Company’s retained independent appraiser against state-law liability. Since the appraiser was not a fiduciary under ERISA, it was not subject to the exclusive benefit rule. Still, the Court found that imposing additional state law liability on the appraiser would hinder the Trust Company’s single-hat duties – the ability to hire experts whose opinions were not swayed by the acts of corporate executives. The Court also found that the appraiser still owed federal-law obligations under ERISA when serving as the Trust Company’s contractor and that such obligations should not be muddled with potentially conflicting state-law obligations to the corporation. Finally, state law liability against the contractor could conflict with ERISA’s remedial limits against non-fiduciaries – a cause of action for equitable relief available when brought only by the Secretary of Labor.

The case is Halperin v. Richards, __ F.4th __, 2021 U.S. App. LEXIS 22348, 2021 WL 3184305 (7th Cir., No. 20-2793, July 28, 2021).

As a general rule, an asset purchaser does not assume the seller’s liabilities, including its ERISA obligations. Courts, however, have formulated an exception to this general rule via the doctrine of successor liability.  Successor liability is an equitable doctrine requiring a court to “strike a proper balance between on the one hand preventing wrongdoers from escaping liability and on the other hand facilitating the transfer of corporate assets to their most valuable uses.” EEOC v. Vucitech, 842 F.2d 936, 944-45 (7th Cir. 1988).

The doctrine was first applied to labor law obligations, and then to employment law claims.  Eventually, its reach was expanded to ERISA obligations, in the form of employer withdrawal liability and contribution delinquencies.  Successor liability provides multiemployer funds with a potential second collection target, namely a successor, provided that certain continuity and notice requirements are satisfied.  Indeed, as the Seventh Circuit has stated, “a second chance is precisely the point of successor liability.” Chicago Truck Drivers, Helpers and Warehouse Workers Union Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 51 (7th Cir. 1995). Many funds have used this to their advantage by aggressively (often successfully) pursuing claims against putative successors.

However, this federal common law doctrine is not an independent cause of action, as illustrated in E. Cent. Illinois Pipe Trades Health & Welfare Fund v. Prather Plumbing & Heating, Inc.,  No. 20-2525, 2021 U.S. App. LEXIS 20083 (7th Cir. July 7, 2021) (“Prather Plumbing”), which involved father-son plumbing businesses. The father’s business was unionized, and owed two multiemployer funds almost $300,000, collectively. After working for his father’s plumbing company, the son then started his own plumbing business using approximately $25,000 worth of equipment purchased from his father’s company. The son’s business also hired some of his father’s former employees and serviced some of his father’s former clients. Not surprisingly, when the father’s business closed at the same time as his son’s was being formed, the funds sought to collect from the son’s company on a theory of successor liability.

The district court granted summary judgment for the defendant on equitable grounds, reasoning that a $25,000 acquisition leading to a $300,000 liability would have been patently unfair. The  appellate court, however, vacated and remanded, on jurisdictional grounds. The Seventh Circuit found that a claim for successor liability, a federal common law doctrine, was not a cause of action arising under federal law.  As a result,  it was insufficient to establish federal question jurisdiction within the meaning of 28 U.S.C. § 1331.

The Seventh Circuit reiterated that federal courts are courts of limited jurisdiction; they can “exercise judicial power only over those categories of Cases and Controversies authorized in the Constitution and by Congress.” Congress has implemented this jurisdictional authority via the federal question jurisdiction statute: 28 U.S.C. § 1331. This provision confers jurisdiction over federal questions: the “district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”

In Prather Plumbing, the funds argued that their successor liability claim by definition arose under federal law. After all, a claim arising under federal common law “necessarily presents a federal question.” The Seventh Circuit, however, disagreed.

The Court observed that absent circumstances not present, “a case arises under federal law when federal law creates the cause of action asserted.” Prather Plumbing, 2021 U.S. App. LEXIS 20083, at *8-*9 (quoting Gunn v. Minton, 568 U.S. 251, 257 (2013)). In the absence of such a federal cause of action, § 1331 is not satisfied and the court lacks jurisdiction.

Applying these principles, the Court held that the successor liability claim was not a federal cause of action. Id. at *15-*16 (relying on Peacock v. Thomas, 516 U.S. 349 (1996) (action to pierce corporate veil and collect from corporate officer for ERISA judgment against defunct corporation was not a cause of action under ERISA or any other federal statute)). Accordingly, without any federal statutory right of action for successor liability (under ERISA or otherwise), the claim did not arise under federal law and the Court therefore lacked subject matter jurisdiction.

Prather Plumbing demonstrates the procedural and jurisdictional complexities that arise in suits asserting successor liability claims. The case also highlights the risks associated with multiemployer funds desperate to connect the dots between union employers, their successors, and non-union employers, as well as the importance of buyers carefully considering the reach of these funds in M&A transactions.

Contact the authors if you have any question about successor liability or multiemployer benefit funds.

American Airlines, Inc. and its affiliated credit union recently defeated an appeal challenging a low-yield investment option in the airline’s 401(k) plan when the Fifth Circuit ruled that the plan participants lacked Article III standing to bring their ERISA claims.

In 2016, the plaintiffs filed suit on behalf of a putative class of nearly 20,000 American Airlines 401(k) plan participants who invested money in American’s Federal Credit Union Option (FCU Option), a demand deposit fund offered under the plan. The plan participants argued, among other things, that American and its Asset Administrative Committee breached their fiduciary duties and engaged in prohibited transactions by selecting and retaining the FCU Option instead of a stable value fund. The plaintiffs’ claims were primarily based on the higher interest rate available from stable value funds, disregarding the increased investment risk of the stable value funds relative to the FCU Option, and that stable value funds would not have had the government-backed guarantee. The participants also brought a claim against FCU, alleging that it breached its fiduciary duty of loyalty by improperly benefitting from the allegedly unreasonable rate of return for the FCU Option.

The Fifth Circuit affirmed the district court’s conclusion that the plaintiffs lacked standing to assert their breach of fiduciary duty claims against American and its Asset Administrative Committee. In so holding, the Fifth Circuit observed that although the plan eventually began offering a stable value fund—the plaintiffs’ preferred type of capital preservation investment—the participants never invested in this option. For that reason, the appellate court concluded that the participants failed to show that the challenged acts of the defendants caused their injury because they “would not have invested in a stable value fund in a counterfactual world since they did not place their money in one when given the opportunity to do so.”

Regarding the plaintiffs’ breach of loyalty claim against FCU, the three-judge panel reversed the district court’s decision that the plan participants had standing to sue FCU, once again concluding that the plaintiffs failed to show causation. Specifically, the court adopted FCU’s contention that there was “no connection between any alleged losses to the plan” and “the statutory claim against FCU.” The appellate court held that the plaintiffs lacked standing to accuse FCU of improperly using the plan assets held by the FCU Option for its own benefit because the plaintiffs presented no evidence “demonstrating that investors in FCU funds other than the FCU Option received higher interest rates generated by investments of Plan assets.”

The case is Ortiz v. Am. Airlines, Inc., No. 20-10817 (5th Cir. July 19, 2021).

 

On July 16, 2021, the District Court for the Western District of Wisconsin dismissed without prejudice four ERISA claims brought by a former employee alleging mismanagement of Infinity’s defined-contribution 401(k) plan. Plaintiff’s two Fair Labor Standards Act claims were not at issue and remain pending.

Plaintiff alleged that plan fiduciaries violated their fiduciary duties by offering allegedly imprudent, actively managed investment options, and by paying excessive administrative and recordkeeping fees. The court found that plaintiff lacked standing to assert her ERISA claims for two main reasons.

First, plaintiff included a list of the allegedly imprudent funds in her complaint, but Infinity provided evidence that all of her retirement assets were invested in a fund that was not included on the list. Because standing is a question of subject-matter jurisdiction, the court permitted evidence outside the complaint. The court went on to hold that because Infinity’s evidence regarding plaintiff’s investments called her standing into question, the burden shifted to plaintiff to adduce competent proof that standing existed. The court then held that plaintiff failed to meet that burden because she offered no proof that she was injured.

Second, with respect to plaintiff’s excessive fee argument, Infinity provided evidence that the one fund in which plaintiff invested did not pay any recordkeeping fees. The court noted that to survive a motion to dismiss her fee claims, plaintiff needed to provide competent proof that she paid recordkeeping fees. Plaintiff failed to satisfy this burden with mere speculation and reliance on the allegations in her complaint.

The case is Lange v. Infinity Healthcare Physicians, S.C., 20-cv-737-jdp (W.D. Wis. July 16, 2021).

The Supreme Court recently granted the writ of certiorari requested by Northwestern University retirement plan participants, following the Solicitor General’s plea for the Court to hear the case.  Hughes v. Northwestern Univ., No. 19-1401, 2021 U.S. LEXIS 3583 (July 2, 2021). The certiorari petition phrased the question presented as: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA.”

In Hughes, the plan participant-plaintiffs alleged that Northwestern breached the duty of prudence by (1) paying excessive recordkeeping fees (by using multiple recordkeepers and allowing recordkeeping fees to be paid through revenue sharing) and (2) offering mutual funds with excessive investment management fees.

The district court granted defendants’ motion to dismiss, and the Seventh Circuit affirmed. Finding no ERISA violation with respect to Northwestern’s recordkeeping arrangement, the Seventh Circuit noted that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue sharing agreement.

As for the excessive investment management fee claim, the Seventh Circuit concluded that the types of funds plaintiffs wanted (low-cost index funds) were and are available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.” The Seventh Circuit emphasized that Northwestern had provided the plans “with a wide range of investment options” and offered “prudent explanations for the challenged fiduciary decisions.”

The Solicitor General argued that the Seventh Circuit’s decision is incorrect and that its decision conflicts with decisions in the Third and Eighth Circuits. Northwestern argued no circuit conflict exists; instead the circuits “simply reached different results on different complaints.”

The Supreme Court’s order granting the writ of certiorari noted that Justice Barrett took no part in the consideration of this petition. Justice Barrett did not participate because she was a judge on the Seventh Circuit at the time the Seventh Circuit issued its decision. Regardless how the Supreme Court ultimately rules in this case, it is certain to have a significant impact on the more than 127 retirement plan fee class actions that have been filed since January 2020.

In Bellon v. PPG Emp. Life & Other Benefits Plan, PPG Industries, Inc. & the PPG Plan Administrator, the Northern District of West Virginia recently addressed whether a predecessor company may be held liable for a decision made by its corporate successor to terminate retiree life insurance coverage and related benefits following spin-off.

The retiree plaintiffs asserted that company-provided life insurance coverage was wrongly terminated after their former employer, defendant PPG, spun off its commodity chemicals division (to which they once belonged) into a separate public entity called Axiall Corp. Axiall assumed responsibility for certain benefits of PPG’s retirees and later terminated those benefits.

Rejecting that argument, the court granted summary judgment for defendant employer, PPG, its plan, and the plan administrator on all counts, finding plaintiffs’ claims for benefits, discrimination, interference, breach of fiduciary duty, refusal to furnish information, and common law breach of contract failed as a matter of law.

In so holding, the court recognized that taking necessary steps to complete a business transaction—here, predecessor PPG transferring benefits liabilities for its commodity chemicals division to a separate, newly created successor entity, Axiall Corp.—does not trigger PPG’s general fiduciary duties under ERISA, nor create liability for PPG where the terminated benefits were unvested, and where PPG was no longer associated with the plan.

The court also recognized that defendants could not be liable to retiree plaintiffs and their surviving spouses for benefits because defendants were not responsible for the benefits termination decision (the successor Axiall Corp. was) and plaintiffs were not participants in PPG’s plan when their retiree benefits terminated (they were participants in Axiall’s plan).

The court likewise rejected retiree plaintiffs’ arguments that their life insurance benefits vested under predecessor PPG’s plan so they could not be transferred or terminated, reiterating that an employer’s commitment to vest benefits must be stated in clear and express plan language.  Accordingly, the court found that plan language stating only that, “[t]his coverage is provided by the Company” could not establish a promise of lifetime benefits provided by the predecessor.

In denying plaintiffs’ claims, the court also reaffirmed that ERISA does not prohibit an employer from terminating or modifying benefits not vested nor does it prevent an employer from pursuing its business interests as employer when not administering the plan or making investments.

The case is Bellon et al. v. PPG Emp. Life & Other Benefits Plan, PPG Industries, Inc. & the PPG Plan Administrator, No. 5:18-cv-00114 (N.D. W.Va. June 28, 2021).

The District Court for the Southern District of Iowa recently dismissed an ERISA putative class action lawsuit challenging 401(k) performance and fees after plan participants failed to identify appropriate benchmarks in their complaint.

The court reinforced the Eighth Circuit’s standards for stating such claims, requiring that the plaintiffs allege facts establishing “a meaningful benchmark for assessing the performance of the challenged funds.” In particular, the court highlighted the Eighth Circuit’s requirement to identify a comparable fund with a materially similar style, structure, and goal. Without any comparable fund, the court had no way to evaluate the plaintiffs’ allegations and, therefore, the complaint could not satisfy the pleading requirement.

This lawsuit is just one of nearly 100 proposed class actions filed in 2020 challenging 401(k) fees. Jackson Lewis continues to monitor the landscape of these cases and their impacts on plan sponsors and fiduciaries.

The case is Matousek v. MidAmerican Energy Co., No. 4:20-cv-00352 (S.D. Iowa July 2, 2021).

In the clamor that surrounded the current administration’s adoption of the American Rescue Act of 2021 (ARPA), quietly tucked in as Subtitle H is the Butch Lewis Emergency Pension Plan Relief Act of 2021 (Butch Lewis). Butch Lewis has been unsuccessfully bouncing around Congress since 2019. While Butch Lewis is long on rhetoric, at this juncture it is lacking in details or controls.  Pension Benefit Guarantee Corporation (PBGC) regulations will be issued sometime in July. In the interim, it is important for employers to remain vigilant about actions by the PBGC.

As currently structured, Butch Lewis is a “logical” successor to Congress’ previously flawed efforts to “cure” the funding ills of the multi-employer benefit system. Those efforts began in 1980 with Congress’ passage of the Multi-employer Pension Plan Amendments Act of 1980 (MPPAA) and has continued through the passage of the Multiemployer Pension Reform Act of 2014 (MPRA).

WHAT IS KNOWN AND WHAT UNIONS WANT

Congress will provide approximately 86 billion dollars to “critical and declining” funds for financial assistance “…to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment…and ending…in 2051.” Payments will be made to more than ninety funds. There is no cap on this payment, no requirements for repayment, and funding predictions will be performed on a “deterministic basis.” The only obligation is that plans must reinstate suspended benefits and invest the Butch Lewis monies in investment-grade bonds or other investments allowed by the PBGC.

The Butch Lewis portion is otherwise a clean canvas to be augmented by PBGC regulations. Organized labor is using this clean canvas to “suggest” regulations that may harm employers.

  1. Lump Sum Payment

The special financial assistance must be paid as a lump sum of all plan obligations until 2051, not at present value. Thus, $100 due in 2051 will be funded at $100, even though $100 paid in 2051 will be worth far less in 2021. Organized labor contends “all benefits due during the period” is defined as future benefit payment cash flows, not merely accrued benefits or unfunded liability. This concept will cost significantly more than 86 billion dollars. Organized labor also proposes funds should retain discretion as to when to pay from the lump sum payment and when to pay from the traditional asset account.

  1. Withdrawal Liability

While Butch Lewis is silent on how special assistance will impact withdrawal liability, labor is urging for PBGC withdrawal liability rules which will work to the detriment of employers.  Employers that withdraw before the last day of the plan year ending in 2051 would not have the special assistance considered as plan assets in calculating withdrawal liability. Moreover, labor is requesting that employers that withdraw before 2051 be subject to treatment under a mass withdrawal scenario. Thus, employers that normally would make interim payments over a period of twenty years would be required to make those interim payments into infinity!

In the absence of the regulations from the PBGC, the only clear point for an employer is despite Congress’ infusion of billions of dollars into more than ninety plans, it appears that withdrawal liability obligations will not be reduced.

On appeal following a bench trial of claims brought by a class of participants and beneficiaries of a 401(k) plan, the Tenth Circuit affirmed the decision of the District of Colorado calculating damages and prejudgment interest, denying injunctive relief, and finding the employer did not engage in a “prohibited transaction” under ERISA Section 406, 29 U.S.C. § 1106. Ramos v. Banner Health, No. 20-1231 (10th Cir. June 11, 2021).

At trial, the district court concluded the failure to monitor recordkeeping fees under an uncapped, revenue-sharing agreement with a service provider for nearly 20 years was a breach of fiduciary duty resulting in overpayment to the service provider and losses to participants.  However, analyzing damages, the district court found the class expert’s testimony of $19.4 million in excessive recordkeeping fees and corresponding losses was unreliable under Fed. R. Evid. 702(c) and Daubert because it was unquantifiable and non-replicable. The class expert relied solely on his individual prior experiences, of which he provided “scant” information, and he left it unclear as to whether the plans were on the same par with the one at issue.

Accordingly, the district court chose to rely on revenue credits the service provider gave to the fiduciary to approximate the extent of excessive recordkeeping fees because it was based on plan characteristics, asset configuration, net cash flow, fund selection and the number of participants, resulting in damages of about $1.6 million. The Tenth Circuit highlighted that calculation of damages is within the discretion of the district court, affirming the calculation. The district court also utilized the IRS underpayment rate as set forth in 26 U.S.C. § 6621 to calculate prejudgment interest finding that it reasonably approximated the lost earning investment opportunity even though it was not the highest rate among other options, including the federal post-judgment rate or Colorado’s statutory rate, which were much higher. However, because prejudgment interest is discretionary, not mandatory, the Tenth Circuit deferred to the district court.

The appellate court also affirmed the denial of the request for injunctive relief to require the fiduciary to issue a request for proposals to test the market for recordkeeping services. The appellate court reasoned that once the fiduciary updated its agreement to a per-participant recordkeeping fee, the breach ended.

Finally, the Tenth Circuit agreed with the district court’s finding that the services provided by the recordkeeper were not prohibited transactions under ERISA. Plaintiffs contended, “[b]ecause [the recordkeeper] is a service provider and hence a ‘party in interest,’ its ‘furnishing of’ recordkeeping and administrative services to the Plan constituted a prohibited transaction[.]” The Tenth Circuit soundly rejected that notion, noting “[t]he class’s interpretation leads to an absurd result: the initial agreement with a service provider would simultaneously transform that provider into a party in interest and make that same transaction prohibited under § 1106.” Instead, the appellate court clarified that a prior relationship would have to exist between the fiduciary and service provider to make it a party in interest under 29 U.S.C. § 1106 as the goal of ERISA is to prevent such transactions, which raise concerns of impropriety. Because no such evidence was provided by the class, entry of judgment was affirmed.