Compliance August 5, 2013

Fidelity Cleared of Excessive Fee Violation

August 5, 2013 (PLANSPONSOR.com) – A federal appeals court affirmed the dismissal of a lawsuit against Fidelity Management Trust Company regarding excessive fees.
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In the case of Danza v. Fidelity Management Trust Co. (2013 WL 3872118), the 3rd U.S. Circuit Court of Appeals found that the U.S. District Court for the District of New Jersey was correct in dismissing the suit which alleged Fidelity violated various provisions of the Employee Retirement Income Security Act (ERISA) by charging participants of Danza’s retirement plan excessive service fees for reviewing Domestic Relations Orders (DROs).

Danza’s employer A&P contracted with Fidelity to provide recordkeeping and administrative services for the plan. A schedule of the plan listed fees that Fidelity would charge for its services, including fixed fees for DRO services to be paid by plan participants.

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Citing Renfro v. Unisys Corporation, the court determined that “at the point Fidelity was negotiating its fees with A&P, it was not a fiduciary of the plan and owed no duty to plan participants to defray reasonable expenses of administering the plan.” It also found at the time Fidelity and A&P signed the trust agreement “Fidelity was not then a fiduciary and therefore could not be considered a co-fiduciary under Section 405 [of ERISA].”

The 3rd Circuit said Danza needed to prove that a prohibited transaction occurred between the plan and a party of interest, with parties of interest including fiduciaries, employers, employees, service providers and certain stockholders. The court pointed out that while Fidelity is currently a party of interest as a service provider of the plan, it was not at the time the trust agreement was signed.

Finally, the court found that at the time Danza was charged the DRO fee, “the fee structure was set and Fidelity lacked discretion to change it” and therefore was not in violation of Section 406(b).

The full text of the opinion can be found here.

Compliance August 5, 2013

Court Awards Same-Sex Spouse ERISA Plan Benefits

August 5, 2013 (PLANSPONSOR.com) – A federal district court ruled the same-sex spouse of a deceased retirement plan participant is due death benefits.
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In what appears to be the first federal court ruling following the U.S. Supreme Court decision regarding the Defense of Marriage Act (DOMA), the U.S. District Court for the Eastern District of Pennsylvania—a state in which same-sex marriages are not allowed—found Jean Tobits was Sarah Ellyn Farley’s spouse pursuant to the retirement plan document’s language.

The court determined the plan is an Employee Retirement Income Security Act (ERISA)-qualified plan, and contained several hallmarks of an ERISA-qualified plan including those provisions that relate to the distribution of death benefits such as the plan’s requirement that in order to qualify as “spouse,” the individual must be married to the participant for at least one year; the plan’s requirement that a “spouse” must waive his or her right to be the participant’s beneficiary in writing; and the plan’s requirement that death benefits shall go to the “surviving spouse,” absent a spousal waiver. “Not only does it contain language that mirrors the mandates of ERISA and the Code [Internal Revenue Code], the Plan expressly requires that the Plan is to be construed according to ERISA and the Code,” wrote U.S. District Judge Darnell C. Jones, II, in his opinion.

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However, the plan is silent on the definition of spouse. So, the court turned to the Supreme Court’s decision in United States v. Windsor that by defining marriage as strictly between one man and woman, DOMA was unconstitutional. “Following the Court’s ruling, the term ‘Spouse’ is no longer unconstitutionally restricted to members of the opposite sex, but now rightfully includes those same-sex spouses in ‘otherwise valid marriages,’” Jones wrote.

Jones said here can be no doubt that Tobits is Farley’s “surviving spouse” under the plan in light of the Supreme Court’s decision in Windsor. Tobits and Farley were married in Toronto, Canada, in 2006.

The court ordered Farley’s benefits be paid to Tobits, settling competing claims from Tobits and Farley’s parents.

The opinion in Cozen O’Connor v. Tobits is here.

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