No. 13-3467

IN THE UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

________________________________

DANIELLE SANTOMENNO, et al., 

Plaintiffs-Appellants 

v. 

JOHN HANCOCK LIFE INSURANCE COMPANY, et al., 

Defendants-Appellees 

________________________________

On Appeal from the United States District Court 

for the District of New Jersey

_________________________________ 

Corrected Brief of the Secretary of Labor, Thomas E. Perez, as Amicus Curiae 

in Support of Plaintiffs-Appellants and Requesting Reversal 

________________________________ 

M. PATRICIA SMITH 

Solicitor of Labor 

G. WILLIAM SCOTT

Acting Associate Solicitor 

Plan Benefits Security Division 

NATHANIEL I. SPILLER

Counsel for Appellate and Special Litigation 

RADHA VISHNUVAJJALA

Trial Attorney 

U.S. Department of Labor

200 Constitution Ave., N.W., N-4611

Washington, D.C. 20210 

(202) 693-5790
 TABLE OF CONTENTS

Page 

TABLE OF AUTHORITIES ............................................................................... ii 

STATEMENT OF THE ISSUES..........................................................................1 

STATEMENT OF IDENTITY, INTEREST AND AUTHORITY TO FILE ......1 

STATEMENT OF THE CASE .............................................................................2 

1. Statement of facts. .....................................................................................2 

2. District court decision. ................................................................................8 

SUMMARY OF THE ARGUMENT ................................................................ 10

ARGUMENT ..................................................................................................... 12

I. The district court erred in dismissing the claim that John Hancock 

acted as an ERISA fiduciary when it retained authority to 

unilaterally substitute and delete mutual funds from the Plans' 

previously selected investment options and to change the share 

classes in which participants' funds were invested, and did so in 

some instances ....................................................................................... 13

II. The district court erred in dismissing the claim alleging that John 

Hancock acted as an ERISA fiduciary when it set its own fees paid 

from Plan assets ...................................................................................... 23

 

CONCLUSION .... ............................................................................................. 27 

CERTIFICATE OF COMPLIANCE WITH RULE 32(a) 

CERTIFICATE OF VIRUS CHECK 

CERTIFICATION OF BAR MEMBERSHIP 

CERTIFICATE OF SERVICE AND ECF COMPLIANCE 
ii

TABLE OF AUTHORITIES

Federal Cases: Page

Adams v. Freedom Forge Corp.,

204 F.3d 475 (3d Cir. 2000)...................................................................... 19

Arizona State Carpenters Pension Trust Fund v. Citibank (Arizona),

125 F.3d 715 (9th Cir. 1997)..................................................................... 12

Bd. of Trs. of Bricklayers & Allied Craftsmen Local 6 of N.J. Welfare 

Fund v. Wettlin Assocs, Inc.,

237 F.3d 270 (3d Cir. 2001)..................................................2 n.1 & passim

Bd. of Trs. of W. Lake Superior Piping Indus. Pension Fund v. Am. 

Benefit Plan Adm'rs, Inc.,

925 F. Supp. 1424 (D. Minn. 1996) .......................................................... 18

Chao v. Day, 

436 F.3d 234 (D.C. Cir. 2006)................................................................... 16

Charters v. John Hancock Life Ins. Co.,

583 F. Supp. 2d 189 (D. Mass. 2008)..........................................9 & passim

Danza v. Fidelity Mgmt. Trust Co.,

___ Fed. Appx. ___, 2013 WL 3872118 (3d Cir. 2013)........................... 21

David P., Coldesina, D.D.S., P.C. v. Estate of Simper, 

407 F.3d 1126 (10th Cir. 2005)..................................................... 15, 16, 17

Delaware Nation v. Pennsylvania,

446 F.3d 410 (3d Cir. 2006)............................................................ 2 n.1, 13

Edmonson v. Lincoln Nat. Life Ins. Co.,

725 F.3d 406 (3d Cir. 2013)...................................................................... 19

F.H. Krear & Co. v. Nineteen Named Trs.,

810 F.2d 1250 (2d Cir. 1987).................................................................... 24
iii

Federal Cases--(continued): Page

Genter v. ACME Scale & Supply Co.,

776 F.2d 1180 (3d Cir. 1985).................................................................... 15

Greenblatt v. Prescription Plan Servs. Corp.,

783 F. Supp. 814 (S.D.N.Y. 1992)............................................................ 18

Healthcare Strategies v. ING Life Ins. & Annuity Co.,

--F. Supp. 2d--, 2013 WL 4446919 (D. Conn. 2013).......................... 18, 19

Hecker v. Deere & Co.,

556 F.3d 575,

reh'g denied 569 F.3d 708 (7th Cir. 2009) .......................................... 15, 21

Hozier v. Midwest Fasteners, Inc.,

908 F.2d 1155 (3d Cir. 1990).................................................................... 18

In re Ikon Office Solutions, Inc. Sec. Litig.,

86 F. Supp. 2d 481 (E.D. Pa. 2000)........................................................... 13

In re Mushroom Transp. Co., Inc.,

382 F.3d 325 (3d Cir. 2004)................................................................ 16, 17

John Hancock Mut. Life Ins. v. Harris Trust & Sav. Bank,

510 U.S. 86 (1993) .................................................................................... 12

Leimkuehler v. American United Life Ins. Co.,

713 F.3d 905 (7th Cir. 2013)............................................. 17, 18, 19, 19 n.3

Olson v. E.F. Hutton & Co., Inc.,

957 F.2d 622 (8th Cir. 1992)............................................................... 16, 18

Pegram v. Herdrich,

530 U.S. 211 (2000) .................................................................................. 14

Renfro v. Unisys Corp.,

671 F.3d 314 (3d Cir. 2011)................................................................ 20, 21
iv

Federal Cases--(continued): Page

Santomenno v. John Hancock Life Ins. Co., (Santomenno II)

2013 WL 3864395 (D. N.J. 2013) cert.denied.,

133 S.Ct. 529 (2012)....................................................................3 & passim

Santomenno v. Transamerica Life Ins. Co.,

2013 WL 603901 (C.D. Cal. 2013)..................................... 9, 16, 20, 22, 24

Varity Corp. v. Howe,

516 U.S. 489 (1996) .................................................................................. 19

Federal Regulations:

Employee Retirement Income Security Act of 1974 (Title I),

29 U.S.C. § 1001 et. seq.:

Section 2, 29 U.S.C. § 1001., ................................................................... 3

Section 3(21)(A), 29 U.S.C. § 1002 (21)(A)............................1 & passim

Section 3(21)(A)(i), 29 U.S.C. § 1002(21)(A)(i)................. 14, 15, 16, 20

Section 3(21)(A)(iii), 29 U.S.C. § 1002(21)(A)(iii).................. 18, 19, 20

Section 3(34), 29 U.S.C. § 1002(34)........................................................ 2

Section 404(a)(1), 29 U.S.C. § 1104(a)(1)......................................... 5, 23

Section 502, 29 U.S.C. § 1132 ................................................................. 1

Section 504, 29 U.S.C. § 1134 ................................................................. 1

Section 505, 29 U.S.C. § 1135 ................................................................. 1

Miscellaneous:

Fed.R.App.P. 29(a) ......................................................................................... 2

Fed.R.Civ.P. 12(b)(6)................................................................................ 8, 12
v

Miscellaneous—(continued):

DOL Op. 97-16, 1997 WL 277979 (May 22, 1997)..................................... 22
1

STATEMENT OF THE ISSUES 

1. Whether the obligations imposed on fiduciaries of employee benefit plans 

under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 

et seq., apply to an insurance company because it retained final authority to 

substitute or delete mutual funds from the investment options available to 

participants in ERISA-covered pension plans and to change the share classes in 

which participants' funds were invested.

2. Whether ERISA's fiduciary obligations apply to an insurance company 

service provider because it had unilateral authority to set its own administrative 

fees paid from ERISA-covered plan assets.

STATEMENT OF IDENTITY, INTEREST AND AUTHORITY TO FILE 

The Secretary of Labor has primary enforcement and regulatory authority 

for Title I of ERISA, see 29 U.S.C. §§ 1132, 1134, 1135. ERISA protects plan 

participants by imposing stringent standards on the fiduciaries who have the 

authority to manage or control plan assets. ERISA defines "fiduciary" in broad, 

functional terms that include plan service providers that exercise "any authority or 

control respecting management or disposition of [plan] assets" or have "any 

discretionary authority or discretionary responsibility in the administration of such 

plan." Id. § 1001(21)(A). Despite governing documents that gave the defendant 

substantial discretionary authority over plan investments and the amount of fees it 
2

was paid by the plans, the district court held that the defendant was not a fiduciary 

with respect to its ongoing fund or share class selection or its administrative and 

service fees. The opinion, if affirmed, would undermine ERISA's protection of 

plan assets by permitting the exercise of that authority to go unchecked by ERISA's 

strict fiduciary standards. The Secretary has a compelling interest in arguing that 

the district court erred and is, therefore, filing this brief as amicus curiae under 

Federal Rule of Appellate Procedure 29(a). 

STATEMENT OF THE CASE 

1. Statement of facts.1 This case was brought by three employee 

participants, one in the J & H Berge, Inc. 401(k) retirement plan and two in the 

Scibal Associates, Inc. 401(k) retirement plan (the "Plans"), on behalf of the Plans 

and similarly situated participants or beneficiaries in these Plans. Joint Appendix 

("JA") 38-39, 130 ¶¶ 51, 52, 445. The Plans are defined contribution plans under 

ERISA section 3(34), 29 U.S.C. § 1002(34). Id. at 28, 42 ¶¶ 2, 70, 71. The 

Trustees of the Plans contracted with John Hancock Life Insurance Company 

(U.S.A.) ("John Hancock") to provide a menu of investment options for the Plans. 

The menu offered in Santomenno's Plan contained twenty-nine investment options. 

 

1

 This case was dismissed on the pleadings, so for the purpose of this appeal, we 

are assuming all facts alleged in the complaint are true. See Delaware Nation v. 

Pennsylvania, 446 F.3d 410, 415 (3d Cir. 2006); Bd. of Trs. of Bricklayers & 

Allied Craftsmen Local 6 of N.J. Welfare Fund v. Wettlin Assocs., Inc., 237 F.3d 

270, 275 (3d Cir. 2001).
3

Id. at 29-30 ¶ 11. The menu John Hancock offered in the Poleys' Plan contained 

sixty-six investment options. Id. at 30 ¶ 12. For both Plans, Hancock selected both 

Hancock funds and independent funds that paid Hancock revenue-sharing 

payments. The Trustees for each plan then selected all or some of the offered 

funds for inclusion in the Plans, and the participants directed money from their

individual retirement accounts to be invested in the funds they chose from the 

investment options on the Plans' menus. Id. at 52, 53 ¶¶ 132, 134. Participant 

retirement accounts were not invested directly into mutual funds. Santomenno v. 

John Hancock Life Ins. Co. (Santomenno II), 2013 WL 3864395, at *2 (D. N.J. 

2013); JA 53 ¶ 135. Instead, John Hancock created a separate sub-account for 

each mutual fund, pooled all participant accounts for the mutual fund in that subaccount, and invested the separate sub-account in the designated mutual fund. 

Santomenno II, 2013 WL 3864395, at *2; JA 53 ¶ 135. 

Plaintiffs allege that John Hancock was a fiduciary insofar as it had retained 

unilateral authority to add and delete fund investment options from the Plans'

menus. JA 54, 56-57 ¶¶ 147, 155-60. John Hancock also retained and exercised 

the unilateral authority to change the fund share classes, such as retail or 

institutional classes. Each class represents a different expense ratio for the same 

fund, and thus, the expense to participants of investing in a particular fund varied 

according to which share class Hancock chose. Id. at 58-59 ¶¶ 162-66; Table III,
4

Id. at 194, 195, 198 (showing changes in share classes). John Hancock monitored 

the Plans' investment options on a "daily, monthly, quarterly, and annual basis" and 

could and did make changes to the Plans' menus of investment options based on 

the results of its ongoing monitoring and evaluation of fund performance. Id. at

56-58, 63-64 ¶¶ 156, 160-161, 189-91 (describing the "Underlying Fund 

Replacement Regimen" and "FundCheck Fund Review and Scorecard" programs). 

Allegations in the complaint include specific examples from the "Your Investment 

Options" booklets indicating a change in the underlying funds in which a particular 

sub-account was invested. Id. at 56-57 ¶ 157 (e.g., "This sub-account previously 

invested in a different underlying portfolio [the then underlying fund]. It began 

investing in the current underlying portfolio [American Century Vista Fund] 

effective on or about May 7, 2005."). See also id. at 57 ¶ 158 (deletion of the John 

Hancock Classic Value Fund and replacement with the T. Rowe Price Equity 

Income Fund); id. at 58 ¶ 163 (share class changes). Thus, plaintiffs allege that 

Hancock actually exercised the authority to take the portions of the participants’ 

accounts that were invested in a fund and invest them in new fund without the 

approval of another plan fiduciary or the participants. 

In addition to the fund monitoring and evaluation, John Hancock gave a 

"Fiduciary Standards Warranty" to plan sponsors and fiduciaries who met certain 

requirements, including the plans at issue in this case. JA 49, 50 ¶¶ 116, 119; see
5

id. at 60 ¶ 173. If a plan followed its guidelines for choosing mutual fund 

allocations, John Hancock guaranteed that it would pay litigation costs and resolve 

any losses to the plan related to its investment process. Id. at 49, 50 ¶¶ 117, 119, 

120. In advertising the Fiduciary Standards Warranty, John Hancock 

"recognize[d] that fund selection and monitoring is an important part of the due 

diligence process" and stated that it was "confident that [its] investment selection 

and monitoring process meets the highest fiduciary standards." Id. at 50 ¶ 120. 

John Hancock promised that it applied "the same standards that ERISA imposes on 

fiduciaries for satisfying their investment duties under ERISA's prudent man rule" 

when it selected, monitored, and deleted funds. Id. at 63 ¶ 188.

Plaintiffs allege that because John Hancock was a fiduciary with respect to 

fund substitution and deletion, Hancock was subject to ERISA's section 404 duties 

of prudence and loyalty and was required to act solely in the interest of the 

participants and beneficiaries of the Plans. 29 U.S.C. § 1104(a)(1). Plaintiffs 

allege that John Hancock breached this duty on several occasions. JA 128 ¶¶ 419-

20; id. at 68 ¶ 214 n.3 (placing participants' investments in inappropriate share 

classes, which "caused Plaintiffs to suffer from inferior returns on their 

investments"); id. at 164 Count VII, ¶ 4 (charging excessive fees and failing to 

remove the JHT-Money Market Trust as an investment option for the Plans despite 
6

allegedly inferior returns and 2007 SEC citations for fraud and deceit by its 

adviser); id. at 150 Count IV, ¶ 3. 

Plaintiffs further allege that John Hancock violated its fiduciary duties by 

causing the Plans to pay unreasonable and excessive administrative and investment 

management fees. JA 32 ¶ 21. All the fees Hancock received came from assets of 

the Plans. John Hancock's fees for a particular fund included an administrative 

maintenance charge ("AMC"), a sales and service ("S&S") fee, and the underlying 

mutual fund fee. John Hancock assessed these combined fees at the sub-account 

level. Id. at 66 ¶¶ 202-04.2 

The contracts between the Plans' sponsors and John Hancock set a maximum 

AMC for each investment option but allowed John Hancock discretion to reduce 

that fee if offset by other fees or to increase the fee to the maximum. JA 123 ¶ 

399. Additionally, John Hancock contractually retained the sole discretion to 

increase the maximum AMC for a fund if it provided three months' notice to the 

Plan. Contract with J & H Berge, JA 221; Contract with Scibal Assocs., JA 279. 

The Plans had no right under the contract to disapprove an increase, while John 

Hancock could charge a contract termination fee to penalize the Plans if they 

 

2

 John Hancock also received revenue sharing payments from the independent 

(non-Hancock) mutual funds it selected, allegedly as compensation for reducing 

administrative costs to the mutual funds by pooling participants' monies into subaccounts. Santomenno II, 2013 WL 3864395, at *2; JA 34 ¶ 30. 
7

objected to the new maximum AMC and wanted to terminate the contracts. Id. at

67 ¶ 213; Contract with J & H Berge, id. at 227 (discussing application of a 

"discontinuance charge" in relation to termination of the contract). 

For example, in the Group Annuity Contract with Plaintiff Santomenno's 

employer, the maximum AMC for each investment option was set at 1.00% of the 

total value of the sub-account. Contract with J & H Berge, JA 233-72. Because 

the initial AMC for each investment option generally ranged from .00% to .45%, 

plaintiffs allege that John Hancock retained the authority to significantly increase 

the actual AMC, up to the 1.00% maximum, without giving any notice to the 

Plans. See, e.g., Second Amended Complaint ("SAC") Table III, id. at 197-207.

This discretionary authority made John Hancock a fiduciary with respect to setting 

fees and subject to the requirements of sections 404(a)(1) and 406(a) and (b) of 

ERISA. SAC Counts I-V, JA 138-59. The complaint alleges instances where John 

Hancock used its discretion to amend its fees from 2008 to 2009. See, e.g., SAC

Table III, JA 202-03 (AMC for the Columbia Value and Restructuring Investment 

Option increased from its initial value of .15% to .25% between 2008 and 2009; 

AMC for the American Funds Europacific Growth Investment Option increased 

from its initial value of .00% to .50% between 2008 and 2009). Plaintiffs thus 

allege that John Hancock breached its fiduciary duties by setting excessive AMC 

fees. Id.
8

Plaintiffs similarly allege that John Hancock unilaterally set S&S fees and 

retained those fees as revenue for itself. JA 67, 79, 82-83 ¶¶ 207, 257, 270-73. 

The S&S fee is not included in the contracts or otherwise agreed to by the Plans

but is disclosed to participants through the "Your Investment Options" booklet. 

See Contract with J & H Berge, JA 215-72; Contract with Scibal Assocs., JA 274-

315; "Your Investment Options," JA 324; SAC ¶ 207. Plaintiffs also allege that 

John Hancock unilaterally caused them to pay excessive fees by investing their 

funds in share classes charging higher fees than other classes in the same fund. 

SAC Count II, ¶ 6, JA 143-44; Count IV, ¶¶ 3-6, JA 151. Plaintiffs claim John 

Hancock acted imprudently in charging excessive fees to their accounts and failing

to negotiate the removal of 12b-1 fees charged by the underlying mutual funds, and 

that it committed prohibited transactions by unilaterally setting fees for itself. JA

34 ¶ 30.

2. District court decision. On July 24, 2013, the district court granted John 

Hancock's motion to dismiss this case under Federal Rule of Civil Procedure 

12(b)(6) on the ground that John Hancock was not an ERISA fiduciary for the 

purpose of any claim asserted in this case. Santomenno II, 2013 WL 3864395, at 

*8. Because the Plans could initially select a smaller menu of investments from 

the options offered by John Hancock, the court concluded that the Plans, not John 

Hancock, had ultimate authority over which investments were included in the 
9

Plans even though John Hancock reserved the right to substitute or delete the funds 

available to the Plans' participants without seeking or obtaining permission from 

the Plans. Id. at *7-8. The court was also unpersuaded that John Hancock's 

Fiduciary Standards Warranty established fiduciary status, finding that it was 

meant as a guarantee for plan sponsors without warranting that John Hancock itself 

was a fiduciary. In so holding, the court declined to follow Charters v. John 

Hancock Life Ins. Co., 583 F. Supp. 2d 189 (D. Mass. 2008), and Santomenno v. 

Transamerica Life Ins. Co., 2013 WL 603901 (C.D. Cal. 2013), both of which 

found an insurance company to be a fiduciary under what the court termed nearly 

identical facts. Santomenno II, 2013 WL 3864395, at *8.

The district court similarly found that John Hancock was not a fiduciary 

with respect to the setting of its own fees. The court found that it had negotiated 

service provider fees with the Plans at arm's length and fully disclosed those fees, 

and thus owed no duty to the plaintiffs with respect to those fees. Id. at *7. The 

court failed to address the alleged facts that John Hancock did not negotiate its 

S&S fee at all, as it was not part of the contracts with the Plans, and that John 

Hancock could unilaterally change the AMC without consent from the Plans up to 

the contractually set maximum and increase the maximum with three months' 

notice subject to a termination penalty if the Plans refused to pay.
10

SUMMARY OF ARGUMENT 

Under ERISA's broad, functional definition, a person is a "fiduciary" to the 

extent 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" or "has any discretionary authority or 

discretionary responsibility in the administration of such plan." 29 U.S.C. § 

1002(21)(A). John Hancock retained discretionary authority to unilaterally 

substitute and delete mutual funds from the Plans' previously-selected investment 

options and to change the share classes of the particular funds in which 

participants' monies were invested. This included the unilateral authority to take 

plan assets invested in one fund and to invest them in a fund if its choosing. John 

Hancock also retained discretionary authority to set fees for its own benefit.

Further, it exercised this twin authority through affirmative acts or by omission on 

an ongoing basis. Accordingly, John Hancock functioned as a fiduciary and was 

subject to ERISA's fiduciary obligations. Indeed, John Hancock continually 

monitored the Plans' investment options on a "daily, monthly, quarterly, and annual 

basis" through its "Underlying Fund Replacement Regimen"; provided its biannual 

"FundCheck Fund Review and Scorecard" program to the Plans, through which it 

evaluated the investment options selected for a particular plan, gave participants a 

"scorecard" with the results of the evaluation, and could (and sometimes did) 
11

change the Plans' menus of investment options based on these results; and, through 

its Fiduciary Standards Warranty, guaranteed plans meeting its terms full

compliance with ERISA's prudence requirements.

John Hancock also functioned as a fiduciary and was subject to ERISA's 

fiduciary obligations in the setting of the administrative and service fees that 

plaintiffs allege were excessive. The John Hancock contracts with the Plans set a 

maximum administrative maintenance charge ("AMC") for each fund but John 

Hancock retained discretion to increase the initial charge amount up to the 

maximum without re-negotiation. John Hancock could also increase the maximum 

AMC if it gave the Plans three months' notice, but the Plans' only recourse was to 

pay the contractually determined penalty if they chose to terminate the contract 

rather than pay the increased AMC. Hancock also unilaterally set a sales and 

service ("S&S") fee which was not agreed to in the contracts with the Plans, but

only disclosed in the "Your Investment Options" booklet given to participants.

Thus, the district court erred in finding that John Hancock "did not have 

ultimate authority over which investments were included in the Plans" or over the 

setting of its own fees. Santomenno II, 2013 WL 3864395, at *7. The district 

court's decision ignores the important fact that John Hancock not only retained the 

right to substitute or delete the funds available to the Plans, but regularly 

monitored the Plans and could, and on occasion did, unilaterally substitute funds 
12

and share classes at its discretion. Likewise, the decision ignores plausible 

allegations that, despite this authority, John Hancock failed to exercise this 

authority to eliminate funds when it would have been prudent to do so. 

Accordingly, plaintiffs more than sufficiently alleged plausible facts to survive a 

motion to dismiss on the fiduciary breach claims relating to the imprudent 

management or administration of plan assets and on the fiduciary breach and 

prohibited self-dealing claims relating to the AMC and S&S fees.

ARGUMENT

The district court erred by concluding that John Hancock was not a fiduciary 

with respect to its discretionary authority to monitor Plan investments and to 

substitute or delete funds on the Plans' investment menus, or to change the share 

classes of the funds in which the participants invested, or to unilaterally set its own 

fees paid from plan assets. Giving the benefit of doubt to John Hancock, the court 

overlooked the principle that "[f]iduciary status under ERISA is to be construed 

liberally, consistent with ERISA's policies and objectives." Arizona State 

Carpenters Pension Trust Fund v. Citibank (Arizona), 125 F.3d 715, 720 (9th Cir. 

1997) (citing John Hancock Mut. Life Ins. v. Harris Trust & Sav. Bank, 510 U.S. 

86, 96 (1993)). Whether an entity is a fiduciary is a highly fact-intensive inquiry 

and generally cannot be determined at the pleading stage. See, e.g., Bd. of 

Trustees of Bricklayers & Allied Craftsmen Local 6 of N.J. Welfare Fund v. 
13

Wettlin Assocs, Inc., 237 F.3d 270, 275 (3d Cir. 2001) (overturning the grant of a 

12(b)(6) motion because more development was required to determine fiduciary 

status); In re Ikon Office Solutions, Inc. Sec. Litig., 86 F. Supp. 2d 481, 491 (E.D. 

Pa. 2000) (finding it premature at the pleading stage to determine defendant could 

not have acted as a fiduciary).

In exercising its plenary review over the district court's decision to dismiss 

the case on the pleadings, Santomenno v. John Hancock Life Ins. Co., 677 F.3d 

178, 182 (3d Cir. 2012) cert. denied 133 S. Ct. 529 (2012); Delaware Nation v. 

Pennsylvania, 446 F.3d 410, 415 (3d Cir. 2006), this Court must determine 

whether, taking all allegations in the complaint as true, plaintiffs have stated a 

claim for relief. Delaware Nation, 446 F.3d at 415; Wettlin Assocs., 237 F.3d at 

272. Applying this standard to the above-stated allegations, John Hancock's 

motion to dismiss should not have been granted and the case should have 

proceeded to discovery or trial for a determination of fiduciary status and the 

merits of the fiduciary breach allegations.

I. THE DISTRICT COURT ERRED IN CONCLUDING THAT JOHN 

HANCOCK WAS NOT AN ERISA FIDUCIARY DESPITE 

ALLEGATIONS THAT IT RETAINED AND ON OCCASION ACTED 

ON ITS AUTHORITY TO UNILATERALLY SUBSTITUTE AND 

DELETE MUTUAL FUNDS FROM THE PLANS' PREVIOUSLY 

SELECTED INVESTMENT OPTIONS AND CHANGE THE SHARE 

CLASSES IN WHICH PLAN ASSETS WERE INVESTED
14

1. As relevant here, section 3(21)(A) of ERISA defines "fiduciary" broadly 

to confer fiduciary status with respect to a plan on any person to the extent that "(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, ... or (iii) he has any discretionary 

authority or discretionary responsibility in the administration of such plan." 29 

U.S.C. § 1002(21)(A). Plaintiffs' allegations that John Hancock exercised 

"discretionary authority or discretionary control" over plan management within the 

meaning of the first clause of 29 U.S.C. § 1002(21)(A)(i) satisfy the threshold 

question in every fiduciary breach case, which is whether the defendant was acting 

as a fiduciary with respect to the challenged conduct. See Pegram v. Herdrich, 530 

U.S. 211, 226 (2000) (threshold question in fiduciary breach cases is whether 

defendant was "performing a fiduciary function . . . when taking the action subject 

to complaint"). 

As alleged, John Hancock regularly monitored the Plans and had the 

authority to unilaterally delete and substitute any or all funds through the 

Underlying Fund Replacement Regimen and the FundCheck Fund Review and 

Scorecard program. JA 56 ¶ 156. Because John Hancock could exercise this 

power without permission from the Plans, the Plan Trustees did not ultimately have 

control over whether the options they selected from John Hancock's larger menu 
15

remained in the Plans and whether those options would be replaced with other 

funds. See id. at 57-58 ¶¶ 160-61; Hecker v. Deere & Co., 556 F.3d 575, 584, 

reh'g denied, 569 F.3d 708 (7th Cir. 2009) (finding no fiduciary status where 

service provider lacked "final say" over investment decisions). John Hancock also 

had the discretion to change the share classes in which the plan participants'

retirement savings were invested. JA 58 ¶¶ 163-64. Thus, John Hancock had the 

final say over which funds the participants invested in.

This Court has previously found that an entity exercised discretionary 

authority and control in managing a plan when it notified employee participants of 

changes that were not set out in the terms of the plan itself. Genter v. ACME Scale 

& Supply Co., 776 F.2d 1180, 1184-85 (3d Cir. 1985). "Discretion exists where a 

party has the 'power of free decision' or 'individual choice,'" as opposed to merely 

performing functions "which by their nature are inherently ministerial, such as 

clerical services" or "which are performed [solely] within the confines of plan 

policies and procedures." David P. Coldesina, D.D.S., P .C. v. Estate of Simper, 

407 F.3d 1126, 1132 (10th Cir. 2005) (citations omitted). 

2. Plaintiffs' allegations that John Hancock had and in fact exercised control 

over the management and disposition of the Plans' assets are also sufficient under 

the second clause of 29 U.S.C. § 1002(21)(A)(i) to withstand a motion to dismiss. 

JA 56-57, 58 ¶¶ 157, 163. Indeed, this Court has "made clear that one need not 
16

have discretion in exercising authority or control over the management or 

disposition of plan assets in order to qualify as a fiduciary under § 1002(21)(A)(i)." 

In re Mushroom Transp. Co., Inc., 382 F.3d 325, 346 (3d Cir. 2004) (citing Wettlin 

Assocs., 237 F.3d at 274). "A significant difference between the two clauses [of 

subsection (i) of 29 U.S.C. § 1002(21)(A)] is that discretion is specified as a 

prerequisite to fiduciary status for a person managing an ERISA plan, but the word 

'discretionary' is conspicuously absent when the text refers to assets." Wettlin 

Assocs., 237 F.3d at 273. This distinction is not accidental; it reflects Congress's 

intent to insure that all persons with any authority or control over plan assets are

held to ERISA's high fiduciary standards, whereas only persons with discretionary

authority or control over plan management are held to those standards. See id. 

Accordingly, "parties controlling plan assets are automatically in a position of 

confidence by virtue of that control, and as such they are obligated to act 

accordingly." Coldesina, 407 F.3d at 1132 (court's emphasis); see Chao v. Day, 

436 F.3d 234, 236 (D.C. Cir. 2006); Olson v. E.F. Hutton & Co., Inc., 957 F.2d 

622, 626 (8th Cir. 1992) ("A person who usurps authority over a plan's assets and 

makes decisions about the use or disposition of those assets should know they are 

acting as a fiduciary."); cf. Transamerica, 2013 WL 603901, at *10 (finding that 

"in the ERISA context, having and exercising discretionary authority are so close 

as to be identical, and that under ERISA, a fiduciary duty attaches not because a 
17

party takes a discretionary action but when that party acquires the power to take a 

discretionary action"). 

John Hancock exercised control over the management and disposition of the 

Plans' assets because it did much more than just hold or safeguard the Plans' assets

or perform other ministerial functions. Cf. Coldesina, 407 F.3d at 1132;

Mushroom Transp. Co., 382 F.3d at 346-47. John Hancock had the authority to 

take a sub-account containing participants' retirement savings out of one fund and 

invest it in a substitute fund or invest it in a different share class of the same fund. 

Further, plaintiffs allege specific instances where John Hancock unilaterally 

changed the mutual funds into which certain sub-accounts containing plan assets 

were invested. JA 56-57 ¶ 157-58. Plaintiffs also allege specific instances where 

John Hancock changed the share class with respect to a particular fund in which 

the plaintiffs' contributions were invested. Id. at 58 ¶ 163 (e.g., "This sub-account 

[referring to The Growth Fund of America] previously invested in a different share 

class of the underlying portfolio. It began investing in the current share class 

effective on or about July 28, 2009."). Therefore, according to the allegations in 

the complaint, Hancock not only had authority over plan assets, it also "exercised"

that authority in an affirmative, active sense. See Leimkuehler v. American United 

Life Ins. Co., 713 F.3d 905, 912-14 (7th Cir. 2013) (acknowledging the difference 

between the two clauses of subsection (i) and finding no "exercise" of authority 
18

where the service provider did not substitute any fund share classes during the 

class period).

3. Plaintiffs separately alleged that John Hancock was a fiduciary with 

respect to fund substitution and deletion because it "ha[d] discretionary authority or 

discretionary responsibility" over plan administration under 29 U.S.C. § 1002 

(21)(A)(iii); JA 63-64 ¶¶ 190-92. This is sufficient to establish fiduciary status

whether or not it ever exercised that authority. Olson v. E.F. Hutton, 957 F.2d at

625 (subsection (iii) confers fiduciary status on those "who have actually been 

granted discretionary authority, regardless of whether such authority is ever 

exercised"); Bd. of Trustees of W. Lake Superior Piping Indus. Pension Fund v. 

Am. Benefit Plan Adm'rs, Inc., 925 F. Supp. 1424, 1429 (D. Minn. 1996); 

Greenblatt v. Prescription Plan Servs. Corp., 783 F. Supp. 814, 820 (S.D.N.Y. 

1992). In a case involving similar allegations, a Connecticut district court 

distinguished Leimkuehler on this basis because the Second Circuit has recognized 

that subsections (i) and (iii) provide distinct avenues for establishing fiduciary 

status. See Healthcare Strategies v. ING Life Ins. & Annuity Co., --F.Supp.2d--

,2013 WL 4446919, at *6 (D. Conn. 2013). This Court has similarly recognized 

this distinction. See Wettlin Assocs., 237 F.3d at 274; Hozier v. Midwest 

Fasteners, Inc., 908 F.2d 1155, 1162 (3d Cir. 1990). In Leimkuehler, the court 

focused on subsection (i) and did not even consider fiduciary status under 
19

subsection (iii). See 713 F.3d 905. For this reason and because, as we discussed 

above, John Hancock actually exercised its authority over plan assets, this Court 

can find that John Hancock is a fiduciary under section 3(21)(A)(iii) without 

disagreeing with the holding in Leimkuehler.3 

Moreover, the Supreme Court has interpreted "administration" under ERISA 

to include "activities that are the ordinary and natural means of achieving the 

objective of the plan." Varity Corp. v. Howe, 516 U.S. 489, 504 (1996); accord 

Edmonson v. Lincoln Nat. Life Ins. Co., 725 F.3d 406, 422 (3d Cir. 2013). This 

Court has also held that "explaining plan benefits and business decisions about 

plan benefits" to employees is fiduciary activity. Adams v. Freedom Forge Corp., 

204 F.3d 475, 492 (3d Cir. 2000). Here, John Hancock explained its fee structure 

in the "Your Investment Options" booklet it distributed to participants. JA 54, 56-

57 ¶ 146, 157; "Your Investment Options," id. at 318. It also described the results 

of its evaluations in its Fundcheck Fund Review and Scorecard, which was 

distributed to the Plans. Id. at 64 ¶ 191. Thus, apart from its management and 

control over plan management and assets within the terms of the first subsection of 

the "fiduciary" definition, John Hancock's "discretionary authority to change the 

 

3

 The Secretary disagrees with the holding in Leimkuehler v. American United Life 

Ins. Co. as to what activities constitute an exercise of discretion. This case, 

however, is factually distinguishable from Leimkuehler because here there are 

allegations of affirmative exercise of discretion, such as substituting mutual funds 

and substituting share classes. SAC ¶¶ 157, 163. 
20

funds available to 401(k) plans supports fiduciary status under subsection three of 

29 U.S.C. section 1002(21)(A)." Healthcare Strategies, 2013 WL 4446919, at *7. 

4. Thus, the district court erred in holding that John Hancock was not a 

fiduciary because it "did not have ultimate authority over which investments were 

included in the Plans." Santomenno II, 2013 WL 3864395, at *7. Instead, the 

allegations that John Hancock had the ability to unilaterally delete or substitute any 

or all funds and change share classes suffice to state a claim that it exercised 

"authority or control respecting the management or disposition" of the Plans' assets 

under 29 U.S.C. § 1002(21)(A)(i) and "ha[d] any discretionary authority or 

discretionary responsibility in the administration of such plan" under 29 U.S.C. § 

1002(21)(A)(iii).

Despite recognizing that two other district court decisions that found 

fiduciary status – Charters v. John Hancock Life Ins. Co., 583 F. Supp. 2d 189 (D. 

Mass. 2008) and Santomenno v. Transamerica Life Ins. Co., 2013 WL 603901 

(C.D. Cal. 2013) – involved cases with "nearly identical facts," the district court in 

this case declined to follow those decisions and instead purported to apply the 

Third Circuit's decision in Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011). 

Santomenno II, 2013 WL 3864395, at *7. Renfro, however, is factually 

distinguishable from this case. There, Fidelity was a plan service provider whose

limited role did not involve "the selection and maintenance of the mix and range of 
21

investment options included in the plan." Renfro, 671 F.3d at 323. Fidelity only 

had control over the investments that were to be administered by Fidelity, and the 

employer, Unisys, was free to add non-Fidelity funds to its plan and administer 

those investments itself. Id. This Court therefore declined to find Fidelity a 

fiduciary with respect to the fund options. Id. In this case, John Hancock retains 

the discretion to substitute and delete funds from its menu, and thereby from the 

Plans' and participants' menus, without approval from the employers or 

participants. JA 54-55, 57 SAC ¶¶ 151, 158. John Hancock's discretion over 

ongoing fund selection – giving it, not the employer, the "final say" (Hecker, 556 

F.3d at 584) over plan investment options – is much greater than Fidelity's was in 

Renfro. Thus, this Court's conclusion in Renfro that Fidelity was not acting as a 

fiduciary in the circumstances of that case does not warrant a similar conclusion 

under the facts alleged here. Cf. Danza v. Fidelity Management Trust Co., ___ 

Fed. Appx. ___, 2013 WL 3872118, at *2-3 (3d Cir. 2013) (unpublished) (Fidelity 

not a fiduciary in negotiating fees for domestic relations order services because the 

fee structure was set in an agreement with the plan sponsor and Fidelity did not 

have unilateral discretion to change it).

5. The Secretary's guidance on this issue is also instructive. In a 1997 

advisory letter, the Secretary stated that a company that provided ministerial 

services to a plan and retained the right to delete or substitute available investment 
22

options was not a fiduciary if the named fiduciary could decide whether to accept 

or reject the change. See Department of Labor Op. 97–16A, 1997 WL 277979, at 

*5 (May 22, 1997). The Secretary's advisory letter contemplated a company 

providing advance notice to a named plan fiduciary before changing investments 

and giving the fiduciary a reasonable amount of time to either accept the change or 

reject the change and terminate the company's services without penalty. Id. 

Conversely, when the company can unilaterally substitute or delete available funds 

without approval from the employer fiduciary, that company may be a fiduciary. 

See Charters, 583 F. Supp. 2d at 198. Here, the only recourse for the employer 

fiduciary is to terminate the contract after the substitution or deletion and pay a 

penalty. The termination fee creates an obstacle for employers wishing to terminate 

contracts and requires them to choose between paying a termination fee or

accepting Hancock's unilateral substitution or deletion of funds. See Transamerica, 

2013 WL 603901, at *8; Charters, 583 F. Supp. 2d at 199. The plaintiffs, 

therefore, "did not have a meaningful opportunity to reject substitutions." 

Charters, 583 F. Supp. 2d at 199. Here, plaintiffs allege that John Hancock 

retained the unilateral right to substitute or delete investment options without prior 

notice. See JA 56-58, 67 ¶ 155-61, 213. Under the Secretary's guidance, John 

Hancock was therefore a fiduciary in that respect.
23

6. The district court also erred by finding that the reservation of "the right to 

substitute or delete the funds available to the plan" did not relate to any alleged 

breach. Santomenno II, 2013 WL 3864395, at *8. Here plaintiffs allege that John 

Hancock violated its duties of prudence and loyalty under section 404(a)(1) by 

failing to delete an overpriced and underperforming money market fund as an 

investment option. Santomenno II, 2013 WL 3864395, at *7; JA 128 ¶ 419-20. 

John Hancock’s power to change investments and share classes is obviously and 

logically related to this claim. Likewise, as we discuss in the next section, 

plaintiffs’ claim that John Hancock is a fiduciary by virtue of setting its own fees is 

the very basis for its prohibited transaction claims. 

II. THE DISTRICT COURT ERRED IN CONCLUDING THAT JOHN 

HANCOCK WAS NOT AN ERISA FIDUCIARY DESPITE

RETAINING UNILATERAL AUTHORITY TO SET ITS OWN 

ADMINISTRATIVE FEES PAID FROM ERISA-COVERED PLAN 

ASSETS

The district court also erred in finding that John Hancock was not a fiduciary 

with respect to setting its own fees to be paid with plan assets. As set forth in its 

contracts with the Plans, John Hancock retained the sole discretion to increase the 

maximum AMC with three months' notice and could impose a penalty if the Plans 

terminated the contract as a result. Contract with J & H Berge, JA 232, 286; 

Contract with Scibal Assocs., JA 296; JA 67 ¶ 213. The termination fee deterred

employers wishing to terminate contracts and required them to choose between 
24

paying a termination fee or paying an AMC that they found to be excessive. See

Transamerica, 2013 WL 603901, at *8; Charters, 583 F. Supp. 2d at 199. The 

plaintiffs, therefore, "did not have a meaningful opportunity to reject 

substitutions." Charters, 583 F. Supp. 2d at 199. 

John Hancock additionally retained the authority to raise the AMC from its 

initial level, usually between .00% and .45% of the total value of the sub-account, 

up to 1.00% of the total value of the sub-account without providing any notice to 

the Plans. Contract with J & H Berge, JA 233-72; see, e.g., SAC Table III, JA

197-207. When an agreement with an ERISA-covered plan gives a party sufficient 

"control over factors that determine the actual amount of its compensation . . . the 

person thereby becomes an ERISA fiduciary with respect to that compensation." 

F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1259 (2d Cir. 1987). 

That is the case here. 

The district court rejected plaintiffs' argument that John Hancock became a 

fiduciary by setting its own fees because it found that "all of these fees were fully 

disclosed to the Trustees and plan participants." Santomenno II, 2013 WL 

3864395, at *1. In Charters, however, the court correctly held that defendant John 

Hancock was a fiduciary by virtue of the fact that it "retained sole discretion to 

change the maximum administrative maintenance charge at any time upon threemonths prior written notice to Charters." As here, there was a penalty for 
25

withdrawing from the arrangement. The court held that "[t]hat discretion was 

sufficient to make Hancock an ERISA fiduciary with respect to its fees." Charters, 

583 F. Supp. 2d at 198. In Charters, Hancock also "had the sole authority to set the 

administrative maintenance charge, limited only by a maximum charge for each 

sub-account." Id. at 197. The Charters court additionally found that John 

Hancock's fees were not fully disclosed because while it disclosed a maximum 

AMC, it did not disclose how any changes in the AMC would be calculated. Id. at 

199. The facts in this case are nearly identical. Plaintiffs here allege that John 

Hancock has the sole authority to set a maximum AMC and then reduce the actual 

AMC by the amounts it receives in other fees, including revenue-sharing 

payments. JA 123 ¶ 399. John Hancock thus used its discretionary authority over 

the AMC to determine what percent, up to the contractual maximum, to charge. 

Id.; see Charters, 583 F. Supp. 2d at 198. As in Charters, plaintiffs further allege 

that John Hancock does not describe its calculations or explain what services the 

AMC covers. JA 78-79, 123 ¶¶ 253-55, 399. 

Plaintiffs similarly allege that John Hancock unilaterally set S&S fees and 

retained those fees as revenue for itself. JA 67, 79, 82-83 ¶¶ 207, 257, 270-73. 

The S&S fee is not set forth in the contracts that the Plans agreed to but is 

disclosed to participants through the "Your Investment Options" booklet, which is 

not a contractual agreement or incorporated in the agreement signed by the Plans. 
26

See Contract with J & H Berge, JA 215-72; Contract with Scibal Assocs., JA 274-

315; "Your Investment Options," JA 324. The discretion John Hancock had to set 

these fees was thus even greater than the discretion it had with respect to the AMC 

fees. At a minimum, these allegations raise material questions of whether John 

Hancock was acting in a fiduciary capacity when unilaterally setting and 

modifying the S&S fees. Id. at 82 ¶ 270 n.7. Accordingly, the district court should 

not have dismissed the claims alleging fiduciary breaches in the setting of these 

allegedly excessive fees.
27

CONCLUSION

For the foregoing reasons, the Secretary respectfully requests that the Court 

reverse the decision of the district court. 

Respectfully submitted, 

M. PATRICIA SMITH 

Solicitor of Labor 

G. WILLIAM SCOTT

Acting Associate Solicitor 

Plan Benefits Security Division 

NATHANIEL I. SPILLER

Counsel for Appellate and Special Litigation 

_/s/_____________________ 

Radha Vishnuvajjala

Trial Attorney 

U.S. Department of Labor 

Room N-4611 

200 Constitution Ave., N.W. 

Washington, D.C. 20210 

(202) 693-5790
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_/s/_____________________ 

NATHANIEL I. SPILLER

Counsel for Appellate and Special Litigation 

U.S. Department of Labor

Plan Benefits Security Division 

Dated: May 28, 2014

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NATHANIEL I. SPILLER

Counsel, U.S. Department of Labor, 

Plan Benefits Security Division 

Dated: May 28, 2014
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he has been admitted to this Court. 

_/s/___________________ 

Nathaniel I. Spiller

Dated: May 28, 2014
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I certify that on this 28th day of May, 2014, I caused the Corrected Brief of the 

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Nathaniel I. Spiller 

Dated: May 28, 2014 

 
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Nathaniel I. Spiller

Dated: May 28, 2014