AUL’s Revenue-Sharing Practices No Fiduciary Breach

The 7th U.S. Circuit Court of Appeals agreed with a District Court that granted AUL’s motion for summary judgment, concluding that AUL did not owe any fiduciary responsibility to the Leimkuehler Inc. Profit Sharing Plan with respect to its revenue-sharing practices. The appellate court said AUL is not acting as a “functional fiduciary” when it makes decisions about, or engages in, revenue-sharing.   

The court rejected Robert Leimkuehler’s assertion that AUL exercises authority or control over the management or disposition of the plan’s assets by selecting which mutual fund share classes to include on its investment menu. The court said this theory is functionally indistinguishable from the one it rejected in Hecker v. Deere & Co., (see “Appellate Court Backs Deere Case Dismissal”) in which it concluded that the act of selecting which funds will be included in a particular 401(k) investment product, without more, does not give rise to a fiduciary responsibility, both because there is “no authority that holds that limiting funds … automatically creates discretionary control sufficient for fiduciary status,” and because, in any event, “the trust agreement gives Deere, not Fidelity Trust, the final say on which investment options will be included.” 

Leimkuehler also argued that AUL exercises authority or control through the various activities associated with maintaining the separate account. According to the court opinion, in order to manage that account, AUL must keep track of individual plan participants’ contributions and investment directions. It then must invest participants’ funds in the mutual funds they select and credit returns from the funds to the participants’ accounts. Although these tasks are essentially ministerial, Leimkuehler argued they are sufficient to make AUL a fiduciary, because the law requires only that AUL exercise “any authority or control respecting management or disposition of its assets.”   

Citing a Supreme Court opinion, the appellate court said AUL’s control over the separate account can support a finding of fiduciary status only if Leimkuehler’s claims for breach of fiduciary duty arise from AUL’s handling of the separate account, but they do not.  

The U.S. Department of Labor (DOL), which appeared in the appeal as amicus curiae on behalf of Leimkuehler, offered a third theory—that AUL’s contractual reservation of the right to substitute or delete funds made available to the Leimkuehler plan’s participants is itself an exercise of authority or control over the plan’s assets, even if AUL never affirmatively exercises its contractual right in a way that gives rise to a claim. The DOL said AUL “exercises” this authority in a negative sense every time it invests a participant’s contributions in one of the chosen mutual fund share classes, as opposed to a less expensive share class of that same mutual fund.   

However, the court found this theory is unworkable. "It conflicts with a common-sense understanding of the meaning of 'exercise,' is unsupported by precedent, and would expand fiduciary responsibilities under Section 1002(21)(A) to entities that took no action at all with respect to a plan,” the court wrote in its opinion. The court concluded that Section 1002(21)(A)’s “reach is limited to circumstances where the individual actually exercises some authority."