Unum Life Insurance Company of America issued group life insurance policies to two employers. Those policies provided that if a claim for benefits was at least $10,000, then a retained asset account would be made available to the beneficiary. The retained asset account was an interest-bearing account established in the beneficiary’s name. How interest was to be credited to the account was unstated. A beneficiary could draw down the account by writing checks against the amounts credited to the retained asset account. The retained asset account was a bookkeeping device, with Unum retaining those assets until the beneficiary drew down the account.  

A committee at Unum would periodically meet to determine what amount of interest should be credited to retained asset accounts. Among the considerations used to determine a rate of interest were the rate at which beneficiaries would draw down the accounts to place the funds into higher yielding accounts (thereby depriving Unum of the use of those funds), and whether higher interest rates on retained asset accounts offered by other insurers would cause Unum to lose business. For the period at issue, Unum settled on a one percent interest rate. Unum’s peers offered an average rate of two percent during the same period, with some insurers providing rates as high as four percent.  

The U.S. District Court for the District of Maine first held that Unum was not a fiduciary by virtue of exercising control over plan assets. It was the insurance policy itself, the district court noted, that was a plan asset, not the proceeds due under that policy. Thus, by investing the amounts credited to the retained asset accounts on its own behalf, Unum was not self-dealing in plan assets.

The district court next analyzed whether Unum was a fiduciary as a result of exercising discretionary authority in the administration of the plan. The district court answered this inquiry in the affirmative. In so holding, the district court explained that Unum’s retention of discretion to set interest rates under the policy made it a fiduciary. Had Unum removed this discretion by setting forth the interest rate in the plan (even one tied to an index rate), it would have escaped status as a fiduciary.

Finding that Unum was a fiduciary when setting interest rates under the plan, the district court also found that Unum had breached its fiduciary duties. The considerations used by Unum’s committee in setting interest rates, together with the average rates provided by Unum’s peers, established that Unum was not acting solely in the interest of beneficiaries, a breach of its fiduciary duties.  

As to damages, plaintiffs sought equitable relief in the form of disgorgement of Unum’s investment spread (i.e., the difference between the one percent interest rate credited to the retained asset accounts and the amount earned by Unum on the retained funds). The district court rejected such an approach. Since Unum’s breach related to crediting the retained asset accounts with a below market rate of interest, not self-dealing in plan assets, the appropriate remedy was to award plaintiffs the difference between the actual amount paid by Unum and the amount that would have been paid had a market rate of interest been paid. (Merrimon v. Unum Life Ins. Co. of Am., D. Me. 2012)