A group of participants in the Bank of America (BOA) 401(k) and pension plans commenced a lawsuit alleging BOA engaged in prohibited transactions and breached its fiduciary duty by selecting and maintaining BOA-affiliated mutual funds in the investment mix for the plans, despite the availability of other investment options that performed better while charging lower fees.
BOA moved to dismiss the pension plan claims on the basis that the participants had not identified any actual injury and therefore had no standing to sue. The Fourth Circuit Court of Appeals agreed with BOA that the participants failed to identify any injury under the pension plan the courts could remedy. The court ruled the pension plan participants could not show an injury in fact because benefits under a defined benefit pension plan are not affected by the performance of the plan’s underlying investments. The court rejected the argument that injury occurs because there is a risk the pension plan might fail on account the investment selections, which would jeopardize plan benefits.
BOA also contended that the 401(k) plan claims were barred by the applicable statute of limitations under ERISA. Again, the court agreed with BOA. Initial selection of the BOA-affiliated funds for inclusion in the 401(k)plan investment lineup triggered the running of the limitations period, and that clearly had occurred outside the limitations period. The participants argued, however, they could still bring an action because a new prohibited transaction and breach of fiduciary duty occurred every time the plan committee met and did not remove the BOA-affiliated funds from the 401(k) plan’s offerings. The court rejected this argument, ruling that the alleged prohibited transactions and breach could only be based on the initial selection of the funds. To establish their claim based on the committee’s failure to remove the funds, the court ruled that the participants must “show that a fiduciary caused the plan to engage in the allegedly unlawful transaction.” The court ruled that a decision to continue certain investments, or a defendant’s failure to act, cannot constitute a “transaction.” (David v. Alphin, 4th Cir. 2013)