United States Court of Appeals

For the Eighth Circuit

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No. 18-3310

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Frederick Rozo

lllllllllllllllllllllPlaintiff - Appellant

v.

Principal Life Insurance Company

lllllllllllllllllllllDefendant - Appellee

Principal Financial Group, Inc.

lllllllllllllllllllllDefendant

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American Council of Life Insurers; Chamber of Commerce of the United States of

America; American Benefits Council

lllllllllllllllllllllAmici on Behalf of Appellee(s)

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Appeal from United States District Court

for the Southern District of Iowa - Des Moines

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 Submitted: October 18, 2019

Filed: February 3, 2020

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Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges. 

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BENTON, Circuit Judge. 

Frederick Rozo invested in an Employee Retirement Income Security Act

(ERISA) plan offered by Principal Life Insurance Company. The plan set a

guaranteed rate of return every six months. Rozo alleges that Principal, a service

provider to the plan, violated ERISA. The district court granted Principal summary

judgment, finding that it is not a fiduciary when setting the rate. Having jurisdiction

under 28 U.S.C. § 1291, this court reverses. 

Principal offers a 401(k) retirement plan—a Principal Fixed Income Option

(“plan”)—which gives participants a guaranteed rate of return, the Composite

Crediting Rate. Principal unilaterally calculates this CCR every six months. Before

the CCR takes effect—typically a month in advance—Principal notifies plan

sponsors, which alert the participants. 

If a plan sponsor wantsto reject the proposed CCR, it must withdraw itsfunds,

facing two options: (1) pay a surrender charge of 5% or (2) give notice and wait 12

months. If a plan participant wishes to exit, he or she faces an “equity wash.” They

can immediately withdraw their funds, but not reinvest in plans like the PFIO for

three months. 

Rozo, a former plan participant, alleges that Principal’s setting of the CCR

breaches its fiduciary duty and engages in prohibited transactions under ERISA. 

Both counts rely on Principal being a fiduciary. Alternatively, if Principal is not a

fiduciary, Rozo pleadsthat Principal is engaging in prohibited transactions as a party

in interest. 

After certifying a class action, the district court granted Principal summary

judgment, concluding it is not a fiduciary nor liable as a party in interest. Rozo

appeals.

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This court reviews de novo a district court’s grant of summary judgment

viewing genuinely disputed facts “in the light most favorable to the nonmoving

party.” Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en

banc), quoting Ricci v. DeStefano, 557 U.S. 557, 586 (2009). If the record taken as

a whole could not lead a rational trier of fact to find for the nonmoving party,

summary judgmentshould be granted. Torgerson, 643 F.3d at 1042, citing Ricci, 557

U.S. at 586.

I.

Principal is a fiduciary when it sets the CCR. “[A] person is a fiduciary with

respect to a plan to the extent (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 . . .” 29 U.S.C. §

1002(21)(A); Maniace v. Commerce Bank of Kansas City, N.A., 40 F.3d 264, 267

(8th Cir. 1994) (“Clearly, discretion is the benchmark for fiduciary status under

ERISA.”). See also Pegram v. Herdrich, 530 U.S. 211, 226 (2000) (“In every case

charging breach of ERISA fiduciary duty, then, the threshold question is . . . whether

that person was acting as a fiduciary . . . when taking the action subject to

complaint.”). 

The parties agree that a recent Tenth Circuit decision should guide this appeal. 

Teets v. Great-West Life & Annuity Ins. Co., 921 F.3d 1200 (10th Cir. 2019). Teets

determines that a service provider acts as a fiduciary: if (1) it “did not merely follow

a specific contractual term set in an arm’s-length negotiation” and (2) it “took a

unilateral action respecting plan management or assets without the plan or its

participants having an opportunity to reject its decision.” Id. at 1212. See McCaffree

Financial Corp. v. Principal Life Ins. Co., 811 F.3d 998, 1003 & n.2 (8th Cir. 2016)

(analyzing (1) “adherence to” contract terms “clearly identified” and (2) “contract

empowered [plan sponsor] to reject” service provider’s act). 

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This court agrees that Teets’s two-part test controls because it properly

interprets ERISA. If the provider’s actions (1) conform to specific contract terms or

(2) a plan and participant can freely reject it, then the provider is not acting with

“authority” or “control” respecting the “disposition of [the plan’s] assets.” See 29

U.S.C. § 1002(21)(A);Black’sLaw Dictionary (11th ed. 2019)(defining “authority”

as “[t]he official right or permission to act, especially to act legally on another’s

behalf; especially, the power of one person to affect another’s legal relations by acts

done in accordance with the other’s manifestations of assent”; defining “control” as

“[t]o exercise power or influence over”).

II.

At Teets step one, Principal’s setting of the CCR does not “conform[] to a

specific term of its contract with the employer plan.” Teets, 921 F.3d at 1212. Every

six months, Principal sets the CCR with no specific contract terms controlling the

rate. Principal calculatesthe CCR based on past rates in combination with a new rate

that it unilaterally inputs. 

Principal asserts that it is acting pursuant to the contract because it authorizes

Principal to set the CCR. This assertion conflates two issues. Although the contract

empowers Principal to set the CCR, the rate is not a “specific term[] of the contract.” 

Teets, 921 F.3d at 1212. When Principal notifies a plan sponsor of the proposed

CCR, the sponsor has not agreed to it. A service provider may be a fiduciary when

it exercises discretionary authority, even if the contract authorizes it to take the

discretionary act. 

Prior case law “stands for the proposition that if a specific

term (not a grant of power to change terms) is bargained

for at arm’s length, adherence to that term is not a breach

of fiduciary duty. No discretion is exercised when an

insurer merely adheres to a specific contract term. When

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a contract, however, grants an insurer discretionary

authority, even though the contract itself is the product of

an arm’s length bargain, the insurer may be a fiduciary.”

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 737 (7th Cir. 1986). 

Principal citesinapposite casesthat did not find fiduciary status because—unlike the

setting of the CCR here—the provider’s act was contractually predetermined. See

McCaffree, 811 F.3d at 1003 (finding no fiduciary statusin a case alleging excessive

fees because “the contract between [the parties] clearly identified each separate

account’s management fee and authorized [defendant] to pass through additional

operating expenses to participants in these accounts.”) (emphasis added);

Santomenno v. Transamerica Life Ins. Co., 883 F.3d 833, 841 (9th Cir. 2018)

(ruling no fiduciary capacity for “withdrawal of predetermined fees”) (emphasis

added); Hecker v. Deere & Co., 556 F.3d 575, 583 (7th Cir. 2009) (contract giving

plan sponsor “the final say” on investment options). 

III.

At Teets step two, the plan sponsors here do not “have the unimpeded ability

to reject the service provider’s action or terminate the relationship.” Teets, 921 F.3d

at 1212. If a plan sponsor wishes to reject the CCR, it must leave the plan, with two

options: (1) pay a 5% surrender charge or (2) have its funds remain in the plan for

12 months. Charging a 5% fee on a plan’s assets impedes termination. Likewise,

holding a plan’s funds for 12 months after it wishes to exit impedes termination.

1

1 The delay probably subjects a plan’s funds to at least one new CCR, despite

the plan sponsor never approving the rate change. Neither party confirms that a plan

sponsor’s funds are subject to a CCR change during the 12-month delay. However,

the plan’s contractsaysthey are, stating, “If [Principal] delay[s] payment as permitted

under this Section [regarding termination of contract], amounts to be paid or

transferred will continue to earn interest at the rate determined pursuant to each

Applicable Schedule as described in Article II, Section 2 until the transfer occurs.” 

Article II, Section 2 governs the setting of the rate. 

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Principal, therefore, is a fiduciary exercising control and authority over the CCR. See

Chicago Bd. Options Exch., Inc. (CBOE) v. Connecticut General Life Ins. Co., 713

F.2d 254, 260 (7th Cir. 1983) (finding fiduciary status because a restriction requiring

10 years to withdraw funds “lock[ed]” in the plan sponsor). 

Principal argues that the surrender penalty and delay are not impediments

because they are in the plan contract. This argument is misplaced. Fiduciary status

focuses on the act subject to complaint. See Pegram, 530 U.S. at 226. Here, Rozo

complains about the setting of the CCR. Because plan sponsors do not have an

opportunity to agree to the CCR until after it is proposed, the CCR is a new contract

term. This court, therefore, must decide if plan sponsors can freely reject the term. 

See Teets, 921 F.3d at 1212. It does not matter that the barriers to rejecting the CCR

are in the contract. See, e.g., CBOE, 713 F.2d at 256 (10% withdrawal limit in

contract); Charters v. John Hancock Life Ins. Co., 583 F. Supp. 2d 189, 199 (D.

Mass. 2008) (termination penalties in contract). 

Relatedly, Principal asserts, without support in the record, that enforcing the

surrender charge at the time of exit is no different than having the plan sponsor pay

an up-front charge for free exit later. Not true. The critical inquiry here is the plan

sponsor’s choice at the time it receivesthe proposed CCR. If impeded then, Principal

exercises control. 

Principal also believes that Teets, which found no fiduciary status, controls. 

The investment vehicle there, although similar to the one here, differs in one critical

respect. The Teets service provider had a “contractual option to impose a 12-month

waiting period on plan withdrawal,” but never exercised it. Teets, 921 F.3d at 1217

(emphasis added). Here, Principal imposes the 12-month delay. 

Finally, Principal argues that a participant’s ability to freely reject the

CCR—regardless of the plan sponsor’s ability—negates fiduciary status for the

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service provider. Teets summarizes ERISA case law as finding fiduciary status if

either a plan sponsor or a participant is impeded from rejecting the service provider’s

act. See Teets, 921 F.3d at 1213, citing CBOE, 713 F.2d at 260 (“Fiduciary status

turns on whether the service provider can force plans or participants to accept its

choices about plan management or assets.”) (emphasis added), and citing Charters,

583 F. Supp. at 199 (“And when the plan or the plan participants cannot reject the

service provider’s action or terminate the contract without interference or penalty, the

service provider is a functional fiduciary.”) (emphasis added). Because the sponsor

here isimpeded, the participant’s ability to reject the CCR does not negate Principal’s

fiduciary status. 

IV.

Because Principal is a fiduciary when it sets the CCR, this court need not

address Rozo’s argument alleging that Principal is conducting a prohibited

transaction as a party in interest. 

This court reverses and remandsto the district courtfor proceedings consistent

with this opinion.

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The judgment is reversed.

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