PLANSPONSOR - August/September 2019 - 11

predecessor fiduciaries, they need to have
had actual knowledge of the predecessor
fiduciaries' breaches, " the decision says.
" Defendants further argue plaintiffs
produced no evidence of actual knowledge
by the successor fiduciaries; thus, Count
VIII must fail. In response, plaintiffs
contend they need only produce evidence
that the successor fiduciary defendants
had constructive knowledge of or were
willfully blind to their predecessors'
breaches. Plaintiffs further submit that
summary judgment is generally inappropriate
where a party's state of mind is at
issue, as is the case here, because of the
critical role of the fact-finder in assessing
and weighing such evidence. "
At the core of the plaintiffs' argument
is the theory that Count VIII
involves successor fiduciary liability,
which, they argue, is separate and
distinct from co-fiduciary liability.
Thus, they argue, Count VIII " arises
under ERISA's general fiduciary duty
provisions. Furthermore, plaintiffs say,
because " predecessor and successor fiduciaries
are not 'co-fiduciaries' they are
not fiduciaries at the same time and do
not act jointly to manage the plan. "
In ruling for the defense on this
complex set of issues, the District Court
states that none of the cases cited by plaintiffs
use the " constructive knowledge
language " the plaintiffs rely on in their
arguments.
Plaintiffs argue that, viewed collectively,
summary judgment is inappropriate
here because there exists a genuine
issue of material fact as to whether defendants
should have known of the alleged
fund selection breaches. The District
Court disagrees.
" In short, plaintiffs have failed to
adduce evidence that defendants had
actual knowledge of their predecessors'
breach; defendants thus cannot be liable
for failing to remedy the allegedly imprudent
selection process for the affiliated
funds. " -John Manganaro
From Washington
And the Courts
DOL Exemption Paves the
Way for Auto-Portability
The Department of Labor (DOL) issued
its final prohibited transaction exemption
(PTE) for automatic portability. This action
has removed the requirement that participants
consent to have their small balance
of $5,000 or less in a safe harbor individual
retirement account (IRA) automatically
rolled into their new employer's plan.
Last November, the DOL issued an
advisory opinion on auto-portability. It
offered a safe harbor for sponsors and
recordkeepers that pursued this course
of action, by its naming of Retirement
Clearinghouse as the fiduciary. However,
participants still needed to give their
consent, says Spencer Williams, founder,
president and CEO of Retirement
Clearinghouse. " Sponsors and recordkeepers
were in a 'wait-and-see' limbo
because that advisory opinion was only
half the loaf. "
Court Advances Suit Over
Plans' Use of Retail Funds
A federal court judge has denied motions
to dismiss claims in a case against fiduciaries
of Kaleida Health's 403(b) and
401(k) plans. The complaint alleges the
fiduciaries failed to take advantage of the
plans' bargaining power by offering only
actively managed retail mutual funds as
investment options instead of identical
investor class mutual funds with lower
operating expenses.
The defendants contend that neither
Susan Vallance, director of Employee
Benefits at Kaleida, nor the plans' retirement
committee are fiduciaries with
respect to the alleged conduct at issue.
However, U.S. District Judge Elizabeth
Wolford of the U.S. District Court for the
Western District of New York found that
the amended complaint sufficiently alleges
that Vallance has functional control and/or
authority over the plans so as to fall within
the scope of an Employee Retirement
Income Security Act (ERISA) fiduciary.
Likewise, Wolford found the plaintiffs' allegations
as to the retirement committee's
status as a fiduciary are also sufficient.
The defendants argue that the
amended complaint fails to state a breach
of fiduciary duty claim because the retail
funds at issue are part of a wide range
of options, and the fees associated with
those funds fall within ranges that the
courts permit. Wolford said courts in her
court's circuit have found that allegations
saying the " defendants breached their
fiduciary duties by selecting specific retail
funds over lower-cost, but otherwise identical,
institutional funds ... are sufficient
to survive the motions to dismiss. "
Wolford also noted the 2nd U.S.
Circuit Court of Appeals has found that
" ERISA plaintiffs generally lack the inside
information necessary to make out their
claims in detail unless and until discovery
commences, " and accordingly an omission
in the complaint of the fiduciary's
" knowledge, methods or investigations at
the relevant times ... is not fatal to a claim
alleging a breach of fiduciary duty. "
Final Rule on 'Association
Retirement Plans'
The Department of Labor (DOL) has
issued a final rule to help more employers
offer retirement savings benefits through
association retirement plans (ARPs). The
rule, which goes into effect on September
30, will permit employers to join associations
of employers-e.g., in a city, county,
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