Summary Judgment Partially Granted in Case Involving Proprietary Mutual Funds.


The U.S. District Court for the Southern District of New York grants in part and denies in part the motion for summary judgment by the defendant bank regarding the plaintiffs' claims of 401 (k) plan mismanagement in violation of the Employee Retirement Income Security Act of 1974 (ERISA).

The plaintiffs include a class of participants of their employer 401 (k) plan, on behalf of themselves and other plan beneficiaries. The defendants include the employer as plan sponsor, the plan administrator and the various committees that have discretionary authority with regard to the plan.

The plaintiffs argue several violations of ERISA, including the following: (1) breach of the duties of loyalty and prudence for offering proprietary funds despite their excessive fees and underperformance relative to other investments and for failing to monitor and control excessive recordkeeping fees, (2) prohibited transactions with a party in interest based on offering high-cost investments that generated revenue for the defendant, (3) prohibited transactions with a fiduciary by offering mutual funds managed by the defendant bank and (4) failing to monitor fiduciaries. The defendants move for summary judgment.

ERISA Section 404 imposes both a duty of loyalty and a duty of care. Under ERISA Section 404(a), the duty of loyalty requires a fiduciary to discharge his or her duties with respect to a plan "solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of . . . providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan." The duty of care requires a fiduciary to act "with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." This standard of care focuses on a fiduciary's conduct in arriving at an investment decision, not on its results, and asks whether the fiduciary used the appropriate methods to investigate and determine the merits of a particular investment. In order to state a claim for breach of fiduciary duty under ERISA, a plaintiff must allege facts that, if true, would show that the defendant acted as a fiduciary, breached its fiduciary duty, and thereby caused a loss to the plan at issue. Here, there is a dispute of material fact as to whether the defendants breached...

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