Teets v. Great-West Life & Annuity Ins. Co.

919 F.3d 1232

John TEETS, Plaintiff - Appellant,

v.GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, Defendant - Appellee,AARP; AARP Foundation; American Council of Life Insurers, Amici Curiae.

No. 18-1019

United States Court of Appeals, Tenth Circuit.

FILED March 27, 2019

MATHESON, Circuit Judge.

Great-West Life Annuity and Insurance Company ("Great-West") manages an investment fund that guarantees investors will never lose their principal or the interest they accrue. It offers the fund to employers as an investment option for their employees' retirement savings plans, which are governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq.

John Teets—a participant in an employer retirement plan—invested money in Great-West's fund. He later sued Great-West under ERISA, alleging Great-West breached a fiduciary duty to participants in the fund or that Great-West was a non-fiduciary party in interest that benefitted from prohibited transactions with his plan's assets.

After certifying a class of 270,000 plan participants like Mr. Teets, the district court granted summary judgment for Great-West, holding that (1) Great-West was not a fiduciary and (2) Mr. Teets had not adduced sufficient evidence to impose liability on Great-West as a non-fiduciary party in interest. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

Great-West is a Colorado-based insurance company that provides "recordkeeping, administrative, and investment services to 401(k) plans." Aplt. App., Vol. II at 149. It qualifies as a service provider—a "person providing services to [a] plan"— under ERISA. See ERISA § 3(14)(B), 29 U.S.C. § 1002(14)(B).

Mr. Teets participated through his employment in the Farmer's Rice Cooperative 401(k) Savings Plan ("the Plan"). Under the Plan, employees contribute to their own retirement accounts and choose how to allocate their contributions among the investment options offered. When employees invest in a particular fund, they become "participants" in that fund. Great-West contracts with the Plan and other comparable employer plans to offer the investment fund that is the subject of this case. Great-West is not in a contractual relationship with participants.

In this section, we first provide an overview of the ERISA legal framework governing this appeal. We then detail the factual background of the case and the proceedings in the district court.

A. Statutory Background

1. ERISA Protections Against Benefit Plan Mismanagement

ERISA regulates employee benefit plans, including health insurance plans, pension plans, and 401(k) savings plans. It is a "comprehensive and reticulated statute, the product of a decade of congressional study of the Nation's private employee benefit system." Mertens v. Hewitt Assocs., 508 U.S. 248, 251, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (quotations omitted). It governs employers that create and administer benefit plans as well as third parties that provide services for plans. See 29 U.S.C. § 1002(1), (4), (14), (16).

ERISA seeks to protect employees against mismanagement of their benefit plans. See Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 15, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987) ("The focus of the statute thus is on the administrative integrity of benefit plans."). "[T]o ensure that employees will not be left empty-handed," Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996), ERISA imposes fiduciary duties on those responsible for plan management and administration. See ERISA §§ 404, 406, 29 U.S.C. §§ 1104, 1106. "Congress commodiously imposed fiduciary standards on persons whose actions affect the amount of benefits retirement plan participants will receive." John Hancock Mut. Life Ins. Co. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 96, 114 S.Ct. 517, 126 L.Ed.2d 524 (1993) ("Harris Trust").

2. ERISA Fiduciaries

a. Establishing fiduciary status— named and functional fiduciaries

Under ERISA, a party involved in managing a benefit plan takes on fiduciary obligations in one of two ways. See In re Luna, 406 F.3d 1192, 1201 (10th Cir. 2005). First, the instrument establishing a plan must specify at least one fiduciary—typically the employer or a trustee—that will have the "authority to control and manage the operation and administration of the plan." ERISA § 402(a), 29 U.S.C. § 1102(a). These are "named fiduciaries." See Maez v. Mountain States Tel. & Tel., Inc., 54 F.3d 1488, 1498 (10th Cir. 1995) (defining "named fiduciary"). Second, a party not named in the instrument can nonetheless be a "functional fiduciary" by virtue of the authority the party holds over the plan. See Santomenno v. Transamerica Life Ins. Co., 883 F.3d 833, 837 (9th Cir. 2018) ("Transamerica Life Insurance"); David P. Coldesina, D.D.S., P.C., Emp. Profit Sharing Plan & Tr. v. Estate of Simper, 407 F.3d 1126, 1132 (10th Cir. 2005) ("Coldesina") (describing the "functional" approach to evaluating fiduciary status). Under § 3(21)(A) of ERISA,¹ a party becomes a functional fiduciary when

(i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A) (emphasis added).²

Functional fiduciaries' obligations are limited in scope: "Plan management or administration confers fiduciary status only to the extent the party exercises discretionary authority or control." Coldesina, 407 F.3d at 1132. And they must actually exercise their authority or control over the plan's assets.³ Leimkuehler v. Am United Life Ins. Co., 713 F.3d 905, 914 (7th Cir. 2013) (explaining that a decision not to exercise control over a plan's assets does not confer fiduciary status). Any alleged breach of a functional fiduciary's obligations must arise out of an exercise of that authority or control. See id. at 913; Assocs. in Adolescent Psychiatry, S.C. v. Home Life Ins. Co., 941 F.2d 561, 569 (7th Cir. 1991).

As the following discussion illustrates, although named fiduciaries and functional fiduciaries obtain fiduciary status in different ways, they are bound by the same restrictions and duties under ERISA.⁴

b. Fiduciary duties and prohibited transactions

Section 404 of ERISA imposes general duties of loyalty on fiduciaries, requiring them to "discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries" and "for the exclusive purpose of ... [1] providing benefits as to participants and their beneficiaries; and [2] defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1).

In addition to imposing general duties, ERISA prohibits fiduciaries from engaging in certain specific transactions. First, it restricts transactions between plans and fiduciaries. Under § 406(b)(1), a fiduciary may not "deal with the assets of the plan in his own interest or for his own account." 29 U.S.C. § 1106(b)(1). Second, ERISA restricts transactions between fiduciaries and non-fiduciary third parties, referred to as "parties in interest." The latter can include service providers. See ERISA § 3(14)(B), 29 U.S.C. § 1002(14)(B). Under § 406(a), a fiduciary may not allow a plan to engage in a transaction the fiduciary knows or should know is (1) a "sale or exchange, or leasing, of any property between the plan and a party in interest"; (2) "lending of money or other extension of credit between the plan and a party in interest"; (3) "furnishing of goods, services, or facilities between the plan and a party in interest"; (4) "transfer to, use by or for the benefit of, a party in interest, of any assets of the plan"; or (5) "acquisition, on behalf of the plan, of any employer security or employer real property in violation of [§] 1107(a)." 29 U.S.C. § 1106(a)(1)(A)-(E).

If a fiduciary engages in one of these prohibited transactions under § 406, ERISA's civil enforcement provision § 502, allows plan participants to sue the fiduciary "to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan" or "to obtain other appropriate equitable relief." ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Fiduciaries can avoid liability for a prohibited transaction if they qualify for certain exemptions under § 408 of ERISA.

3. ERISA Non-Fiduciary Parties in Interest and Prohibited Transactions

Although parties in interest have no fiduciary obligations to a plan or its participants, the Supreme Court has read § 502(a)(3) to allow a suit against a party in interest for its participation in a prohibited transaction. Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 241, 120 S.Ct. 2180, 147 L.Ed.2d 187 (2000) ("Salomon") ("[Section] 502(a)(3) admits of no limit ... on the universe of possible defendants."). A party in interest is liable if it "had actual or constructive knowledge of the circumstances that rendered the transaction unlawful"—that is, prohibited under § 406(a). Id. at 251, 120 S.Ct. 2180. We discuss this standard in detail below.

B. Factual Background

1. The Key Guaranteed Portfolio Fund

a. Overview

Great-West offers an investment product called the Key Guaranteed Portfolio Fund ("KGPF"). The KGPF is a stable-value fund. It "guarantees capital preservation." Aplt. App., Vol. II at 150. This means KGPF participants will never lose the principal they invest or the interest they earn, which is credited daily to their accounts. Id. The KGPF was one of 29 investment options the Farmer's Rice Cooperative Plan's fiduciaries chose to offer participants like Mr. Teets.

b. Great-West's management of the KGPF and the Credited Interest...