1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-4-1996

IN RE: Unisys Svgs. Plan Litigation v. Unisys Corp.

Precedential or Non-Precedential:

Docket 95-1156

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Recommended Citation

"IN RE: Unisys Svgs. Plan Litigation v. Unisys Corp." (1996). 1996 Decisions. Paper 240.

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1 

 UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

___________ 

Nos. 95-1156, 95-1157 and 95-1186 

___________ 

 IN RE: UNISYS SAVINGS PLAN LITIGATION 

 JOHN P. MEINHARDT, on behalf of himself and 

 all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03067) 

 MICHAEL HECK; JOSEPH MCCARTHY; 

 ANGELO DEPIETRO, on behalf of themselves 

 and all others similarly situated 

 v. 

 UNISYS CORPORATION; THE ADMINISTRATIVE COMMITTEE 

 OF THE UNISYS SAVINGS PLAN; THE INVESTMENT COMMITTEE 

 OF THE UNISYS SAVINGS PLAN; JACK A. BLAINE; 

 JOHN J. LOUGHLIN; KENNETH MILLER; DAVID A. WHITE; 

 STEFAN RIESENFELD 

 (D.C. Civil No. 91-cv-03276) 

 GARY VALA, individually and on behalf 

 of all others similarly situated 

 v. 

 JACK A. BLAINE; MICHAEL R. LOSEY; KENNETH L. MILLER; 

 STEFAN C. RIESENFELD; CURTIS A. HESSLER; DAVID A. 

 WHITE; UNISYS CORPORATION; THE NORTHERN TRUST COMPANY 

 (D.C. Civil No. 91-03278) 

 CAROLYN A. GOHLIKE, on behalf of herself and 

 all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03321) 

 DENNIS C. STANGA; JAMES M. COLLINS, on 
2 

 behalf of themselves and all others 

 similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-04689) 

 JOHN H. BURGESS, JR., on behalf 

 of himself and all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-04696) 

 John M. Meinhardt, Michael Heck, Joseph McCarthy, 

 Angelo DiPietro, Gary Vala, Carolyn Gohlike, 

 Dennis C. Stanga, James M. Collins and John H. 

 Burgess, Jr., 

 Appellants in No. 95-1156 

 IN RE: UNISYS SAVINGS PLAN LITIGATION 

 JOHN P. MEINHARDT, on behalf of himself and 

 all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03067) 

 BERNARD MCDEVITT, on behalf of himself 

 and all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03126) 

 PARKER C. KEAN, on behalf of himself 

 and all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03164) 
3 

 NADIA F. SOS; FAROUK M. SOS, individually 

 and on behalf of all others similarly situated 

 v. 
4 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03582) 

 KENNETH GOERS; JOHN J. CIESLICKI, on 

 behalf of themselves and all others similarly situated 

 v. 

 UNISYS CORPORATION; THE NORTHERN TRUST COMPANY 

 (D.C. Civil No. 91-cv-04678) 

 WILLIAM TORKILDSON 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-04754) 

 Bernard McDevitt, Parker Kean, Nadia F. Sos, 

 Farouk M. Sos, Kenneth Goers, John J. Cieslicki 

 and William Torkildson, 

 Appellants in No. 95-1157 

 IN RE: UNISYS SAVINGS PLAN LITIGATION 

 JOHN P. MEINHARDT, on behalf 

 of himself and all others similarly situated 

 v. 

 UNISYS CORPORATION 

 (D.C. Civil No. 91-cv-03067) 

 HENRY ZYLLA; RICHARD SILVER; RONALD GRIPPO; EDWARD 

 LAWLER; RICHARD ANDUJAR; CLARENCE MULLER; CHARLES 

 WAHLER; JAMES MCLAUGHLIN; DONALD RADER; JOSEPH LAU; 

 JAMES GANGALE; ALFRED CONTARINO; RICHARD COLBY; JOHN 

 MARCUCCI; JOSEPH FIORE; RICHARD MASTRODOMENICO; NICK 

 KLEMENZ; PETER SZCZYBEK, on behalf of themselves and 

 all others similarly situated; ENGINEERS UNION 

LOCAL 444 OF THE INTERNATIONAL UNION OF ELECTRONIC, 

 ELECTRICAL, SALARIED, MACHINE AND FURNITURE 

 WORKERS, A.F.L.-C.I.O.; LOCALS 445 OF THE INTERNATIONAL 

 UNION OF ELECTRONIC, ELECTRICAL, SALARIED, MACHINE AND 

 FURNITURE WORKERS, A.F.L.-C.I.O.; LOCALS 450 OF THE 

 INTERNATIONAL UNION OF ELECTRONIC, ELECTRICAL, 

 SALARIED, MACHINE AND FURNITURE WORKERS, A.F.L.-C.I.O.; 
5 

 LOCALS 470 OF THE INTERNATIONAL UNION OF ELECTRONIC, 

 ELECTRICAL, SALARIED, MACHINE AND FURNITURE WORKERS, 

 A.F.L.-C.I.O.; LOCALS 165 OF THE INTERNATIONAL UNION OF 

 ELECTRONIC, ELECTRICAL, SALARIED, MACHINE AND FURNITURE 

 WORKERS, A.F.L.-C.I.O.; LOCAL 3, INTERNATIONAL 

 BROTHERHOOD OF ELECTRICAL WORKERS, A.F.L.-C.I.O. 

 v. 

 UNISYS CORPORATION; EDWIN P. GILBERT; JOHN J. LOUGHLIN; 

 THOMAS PENHALE, individually and in their capacities as 

 members of the Unisys Employee Benefits Executive 

 Committee and administrators of the Unisys 

Retirement Investment Plan; RICHARD H. BIERLY; CURTIS A. 

HESSLER; LEON J. LEVEL; KENNETH L. MILLER; DAVID A. WHITE; JACK 

 A. BLAINE; STEFAN C. RIESENFELD; GEORGE T. ROBSON, 

 individually and in their capacities as members 

 of the Investment Committee of the Unisys Retirement 

 Investment Plan 

 (D.C. Civil No. 91-cv-03772) 

 Henry Zylla, Richard Silver, Ronald Grippo, Edward 

 Lawler, Richard Andujar, Clarence Muller, Charles 

 Wahler, James McLaughlin, Donald Rader, Joseph Lau, 

 James Gangale, Alfred Contarino, Richard 

 Colby, John Marcucci, Joseph Fiore, Richard 

 Mastrodomenico, Nick Klemenz and Peter Szczybek, 

 individually and on behalf of the class certified, 

 Appellants in No. 95-1186 

___________ 

Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

___________ 

 

Argued 

September 13, 1995 

Before: Mansmann, Scirica and Nygaard, Circuit Judges. 

(Filed January 4, 1996) 

___________ 

James R. Malone, Jr., Esquire (Argued) 

Michael D. Gottsch, Esquire 

Chimicles, Jacobsen & Tikellis 

361 West Lancaster Avenue 

One Haverford Centre 

Haverford, PA 19041 
6 

Joel C. Meredith, Esquire 

Daniel B. Allanoff, Esquire 

Meredith, Cohen & Greenfogel 

117 South 17th Street 

22nd Floor 

Philadelphia PA 19103 

James I. Wasserman, Esquire 

Julian R. Birnbaum, Esquire 

Vladeck, Waldman, Elias & Engelhard 

1501 Broadway 

Suite 800 

New York, NY 10036 

Counsel for Appellants: John M. Meinhardt, Michael 

Heck, Joseph McCarthy, Angelo R. DiPietro, Gary Vala, 

Carolyn Gohlike, Dennis C. Stanga, James M. Collins, 

John H. Burgess, Jr., Bernard McDevitt, Parker Kean, 

Nadia F. Sos, Farouk M. Sos, Kenneth Goers, John J. 

Cieslicki, William Torkildson, Henry Zylla, Richard 

Silver, Ronald Grippo, Edward Lawler, Richard Andujar, 

Clarence Muller, Charles Wahler, James R. McLaughlin, 

Donald Rader, Joseph Lau, James Gangale, Alfred 

Contarino, Richard Colby, John Marcucci, Joseph A. 

Fiore, Richard Mastrodomenico, Nick Klemenz, Peter 

Szczybek 

Laurence Z. Shiekman, Esquire (Argued) 

Pepper, Hamilton & Scheetz 

18th & Arch Streets 

3000 Two Logan Square 

Philadelphia, PA 19103-2799 

Joseph A. Teklits, Esquire 

Unisys Corporation 

P.O. Box 500 

M.S. C2NW 14 

Blue Bell, PA 19424 

Counsel for Appellees: Unisys Corporation, 

Administrative Committee of the Unisys Savings Plan, 

Investment Committee of the Unisys Savings Plan, Jack 

A. Blaine, John J. Loughlin, Kenneth L. Miller, David 

A. White, Stefan C. Riesenfeld, Michael R. Losey, 

Curtis A. Hessler, Edwin P. Gilbert, Thomas Penhale, 

individually and in their capacities as Benefits 

Executive Committe and administrators of the Unisys 

Retirement Investment Plan; Richard H. Bierly, Curtis 

A. Hessler, Leon J. Level, George T. Robson, 
7 

Marcia E. Bove, Esquire 

Room N-4611 

United States Department of Labor 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

 Counsel for Amicus-appellant Secretary of Labor 

Mary Ellen Signorille, Esquire 

American Association of Retired Persons 

601 E Street, N.W. 

Washington, DC 20049 

Counsel for Amicus-appellant American Association of 

Retired Persons 

Robert N. Eccles, Esquire 

Karen M. Wahle, Esquire 

O'Melveny & Myers 

555 13th Street, N.W. 

Suite 500 West 

Washington, DC 10004 

Counsel for Amicus-appellees: ERISA Industry 

Committee, American Standard Inc., Bethlehem Steel 

Corp., Merck & Co., Inc., Rockwell International Corp., 

Scott Paper Company, and USX Corporation 

 ___________ 

OPINION OF THE COURT 

__________ 

MANSMANN, Circuit Judge. 

 This consolidated class action is brought pursuant to 

the Employee Retirement Income Security Act of 1974, ("ERISA"), 

29 U.S.C. § 1001 et seq. (1985 & Supp. 1995), and arises out of 

the collapse in 1991 of the Executive Life Insurance Company of 

California. The plaintiffs, participants in individual account 

pension plans that Unisys Corporation maintained for its 

employees, alleged, inter alia, that the defendants breached 

ERISA's fiduciary duties of prudence and diversification by 
8 

investing plan assets in Executive Life guaranteed investment 

contracts, as well as ERISA's fiduciary duty of disclosure by 

providing participants with misleading or incomplete 

communications regarding these investments and Executive Life's 

financial condition. In their defense, the defendants raised a 

question of first impression, asserting that section 1104(c) of 

the Act, which relieves fiduciaries of liability for losses which 

result from a plan participant's exercise of control over 

individual account assets, applies. The plaintiffs appeal the 

district court's decision to grant the defendants' motion for 

summary judgment on the plaintiffs' breach of fiduciary duty 

claims. 

 We conclude that there are genuine issues of material 

fact as to whether the defendants breached section 1104(a)'s 

fiduciary duties and as to whether the defendants are entitled to 

section 1104(c)'s protection. We will, therefore, vacate the 

district court's grant of summary judgment in the defendants' 

favor and will remand the case to the district court for further 

proceedings. 

I. 

 We begin our analysis by reviewing the evidence of 

record. In the fall of 1986, Burroughs Corporation and Sperry 

Corporation merged to form Unisys. Prior to the merger, both 

Sperry and Burroughs had maintained retirement savings plans for 

employees known as the Sperry Retirement Program - Part B (the 

"Sperry Plan") and the Burroughs Employees Savings Thrift Plan 
9 

(the "BEST Plan"), respectively. Each plan permitted an employee 

to contribute a percentage of his or her compensation into an 

individual account and to direct that it be invested in any one 

or a number of funds that were comprised of different types of 

investments. One of the funds in both of these plans invested in 

guaranteed investment contracts ("GICs") issued primarily by 

insurers. A GIC is a contract under which the issuer is 

obligated to repay the principal deposit at a designated future 

date and to pay interest at a specified rate over the duration of 

the contract. 

 Following the merger, the Sperry Plan and the BEST Plan 

were consolidated to form the Unisys Savings Plan, which took 

effect on April 1, 1988.0 Like its predecessors, the Unisys 

Savings Plan established an individual account for each 

participant and offered several fund alternatives into which a 

 

0 The parties agree that the Unisys Savings Plan is an 

"individual account plan" within the meaning of the Employee 

Retirement Income Security Act of 1974, ("ERISA"), 29 U.S.C. 

§ 1001 et seq. (1985 & Supp. 1995). Section 1002(34) of the Act 

provides: 

§ 1002. Definitions

 (34) The term "individual account plan" or 

"defined contribution plan" means a pension 

plan which provides for an individual account 

for each participant and for benefits based 

solely upon the amount contributed to the 

participant's account, and any income, 

expenses, gains and losses, and any 

forfeitures of accounts of other participants 

which may be allocated to such participant's 

account. 

29 U.S.C. § 1002(34). 
10 

participant could direct contributions on a tax-deferred basis: 

the Diversified Fund, the Indexed Equity Fund, the Active Equity 

Fund; the Unisys Common Stock Fund; the Short Term Investment 

Fund, and the Insurance Contract Fund.0 

 The Insurance Contract Fund invested in GICs. The old 

Sperry Plan Fixed Income Fund, a vehicle for GICs, continued to 

exist, but was closed to new contributions. As GICs matured, 

assets invested in the Fixed Income Fund were reinvested in the 

new Insurance Contract Fund; assets in the BEST Plan equivalent, 

the Guaranteed Investment Contract Fund, were likewise reinvested 

in that Fund, unless a participant specified otherwise.0

Contributions to the Insurance Contract Fund were allocated on a 

pro rata basis among the various GICs held therein. 

 The Unisys Savings Plan allowed a participant to 

transfer assets from one equity fund to another on a monthly 

basis. Due to transfer limitation terms that were included in 

the contracts purchased for the GIC Funds, however, asset 

transfers involving those Funds were restricted. For example, 

all transfers between any of the GIC Funds and the Short-Term 

Investment Fund, another low-risk, interest-earning vehicle, were 

absolutely prohibited. Moreover, if assets were transferred from 

 

0 The Plan also accepted "after-tax" and "tax-deductible" 

contributions that had been made under the prior plans as well as 

transfers from other qualified plans or individual retirement 

accounts. The Plan further provided for matching company 

contributions in the form of shares of Unisys common stock. 

0 For the sake of convenience, the BEST Plan Guaranteed 

Investment Contract Fund, the Sperry Plan Fixed Income Fund, and 

the Unisys Savings Plan Insurance Contract Fund will be referred 

to collectively as the "GIC Funds". 
11 

one of the GIC Funds to the equity or Unisys common stock funds, 

a year had to pass before any assets could be transferred to the 

Short-Term Investment Fund; similarly, if assets were transferred 

from the equity or the Unisys common stock funds to the ShortTerm Investment Fund, a year had to transpire before any assets 

could be transferred out of one of the GIC Funds.0 

 Because the Plan was designed to make final 

distribution of a participant's account on retirement, death, 

disability or employment termination, withdrawals of tax-deferred 

contributions prior to those events were limited to circumstances 

of "financial hardship" and were generally taxable as ordinary 

income, plus 10%. 

 In addition to the Unisys Savings Plan, Unisys 

established the Unisys Retirement Investment Plan ("RIP") and the 

Unisys Retirement Investment Plan II ("RIP II") for unionized 

employees, which for all intents and purposes were identical to 

the Unisys Savings Plan.0 Contributions to the Plans designated 

for investment in the Fixed Income Fund or the Insurance Contract 

Fund were invested together. 

 

0 In addition, the Plan placed a six-month restriction on 

the transfer of assets to the Insurance Contract Fund from the 

equity or Unisys common stock funds if those assets had been 

previously transferred from the Short-Term Investment Fund, as 

well as several other restrictions of six months or a year's 

duration when transfers were made to or from the Best Plan 

Guaranteed Investment Contract Fund or the Sperry Plan Fixed 

Income Fund. 

0 Again, for the sake of convenience, the Unisys Savings 

Plan, the Unisys Retirement Plan ("RIP") and the Unisys 

Retirement Plan II ("RIP II") will be referred to collectively as 

the "Plans". 
12 

 Unisys was the Plans' administrator; the Administrative 

Committee, established by the Unisys Board of Directors, carried 

out the Plans' provisions; and the Investment Committee, also 

established by the Board, was responsible for the Plans' 

investments. The Investment Committee delegated day-to-day 

investment management responsibility for the GIC Funds to two of 

the Investment Committee's members, defendants David White and 

Leon Level, and appointed outside managers to manage investments 

in the Plans' other funds. 

 From time to time White and certain members of his 

staff, including William Heller, Robert Rehley and Charles 

Service, conducted a bid among insurers during which GIC 

contracts were selected for the appropriate GIC Fund. These 

selections were subject to Level's approval and reported to the 

Investment Committee. White and his staff did not have written 

guidelines for the bidding process or contract selection; they 

did, however, have informal operating policies and procedures. In 

particular, they developed a rule that no more than 20% of GIC 

Fund assets would be invested with any one issuer. 

 After the merger in 1986, but before the effective date 

of the Plans in April, 1988, two bids for the Fixed Income Fund 

were held. The first bid occurred on June 9, 1987, in the 

offices of Murray Becker of Johnson & Higgins, a consultant which 

Sperry had used to assist in GIC selections. Prior to bid day, 

Becker mailed bid specifications on Unisys' behalf to a number of 

insurers, including the Executive Life Insurance Company of 

California, inviting them to make a GIC proposal. It was Johnson 
13 

& Higgins' practice to solicit bids only from insurers with a 

superior AAA rating as to claims-paying ability from Standard & 

Poors Corporation. At the time, Standard & Poors had rated 

Executive Life as a AAA company. Likewise, A. M. Best Company, 

another rating agency, had assigned Executive Life its highest 

rating of A+. According to Becker, however, the A+ from A. M. 

Best was of marginal significance since A. M. Best was overly 

generous with its ratings. 

 On the day of the bid, White, his staff and Becker 

reviewed material that Executive Life provided concerning the 

insurer's financial condition and interviewed Executive Life 

representatives about the company's outlook. The group then 

discussed the Executive Life GIC proposal. As was his custom, 

Becker noted that the prospect of purchasing Executive Life GICs 

was "controversial" in light of the "junk bonds" Executive Life 

held in its portfolio. Junk bonds are non-investment securities 

which carry an above-average credit risk and return. Taking 

their cue from Standard & Poors, which was of the view that the 

risk generated by Executive Life's junk bond investments was 

offset by other conservative aspects of the insurer's investment 

strategy, White and his staff were not deterred from investing in 

Executive Life. Becker warned, however, that the Standard & 

Poors AAA rating was reliable only as long as Executive Life's 

junk bond holdings did not exceed 35% of its bond portfolio. 

Ultimately, Becker recommended that Unisys consider the purchase 

of a three-year GIC from Executive Life. While White accepted 

Becker's advice to invest in Executive Life, he rejected Becker's 
14 

view as to the contract's duration. In order to acquire the 

highest interest rate that Executive Life offered, 9.45%, White 

purchased a five-year Executive Life GIC for approximately $30 

million. GIC bids from Travelers Insurance Company and Seattle 

First Bank were also accepted. 

 Subsequent to the June 9, 1987 bid, White and Level 

terminated Johnson & Higgins and did not hire a replacement, 

believing that Unisys personnel could select appropriate GICs 

without the help of a consultant. A second competitive GIC bid 

for the Fixed Income Fund took place on December 2, 1987. Relying 

heavily on Executive Life's ratings, which had not changed since 

June 9, 1987, White invested just over $135 million into another 

five-year Executive Life GIC paying 9.75% in interest. Contracts 

were purchased from Seafirst Bank and Travelers Insurance Company 

as well, bearing interest rates of 9.25% and 9.15% respectively. 

 Shortly thereafter, on January 13, 1988, Unisys 

sponsored a GIC bid for the Insurance Contract Fund. Once again, 

based on the high marks Executive Life continued to receive from 

the rating agencies, White invested about $46 million in a third 

five-year, 9.48% interest-paying Executive Life GIC, bringing the 

total investment in GICs issued by Executive Life to $213 

million. 

 Communications to participants regarding the GIC Funds, 

beginning with BEST Plan and Sperry Plan documents, described the 

Funds as designed to preserve capital and accumulate interest and 

consistently emphasized that investments in GICs were 

"guaranteed" by the issuing insurers. BEST Plan materials stated 
15 

that the goal of the Guaranteed Insurance Contract Fund was "to 

preserve the amount invested and to guarantee a rate of return", 

and provided that "[i]n addition to the interest earned, the 

insurance company guarantees the principal of the fund[] . . . 

[and that] your account cannot go down in value; it will always 

be worth as much as you put in plus your share of the interest 

earned under the contract." Similarly, with respect to the Fixed 

Income Fund, Sperry Plan materials declared that "each year's 

minimum [interest] rate is guaranteed for an entire year." 

 Likewise, the prospectuses for the Plans, distributed 

in the Spring of 1988, stated that the Insurance Contract Fund 

was intended "to preserve capital while earning interest 

income[]" and described the Fund as "invested in contracts with 

insurance companies and other financial institutions which 

guarantee repayment of principal with interest at a fixed or 

fixed minimum rate for specified periods. . . ." The Unisys 

Savings Plan prospectus noted, however, that "[Unisys] does not 

guarantee the repayment of principal or interest." Although the 

1988 RIP and RIP II original prospectuses did not include this 

caveat, it was subsequently included in a 1988 supplement to 

each. Additionally, the Plans' prospectuses pointed out that 

assets of the Insurance Contract Fund were invested in contracts 

issued by, inter alia, Executive Life. 

 The 1988 Summary Plan Descriptions ("SPD"s) for the 

Plans provided that the investment objective of the Insurance 

Contract Fund was to "[p]reserve the amount invested while 

earning interest income[]", described the Funds' investment 
16 

strategy as "[t]ypically contracts of between 3 and 7 years with 

various insurance companies and other financial institutions 

which guarantee the principal and a specified rate of return for 

the life of each contract", and explained that the future 

performance of any of the funds was not certain: 

[b]enefits available are based on your 

savings plan value at the time of 

distribution. Your payments from the Plan 

are subject to the performance of the funds 

in which your accounts are invested. If the 

value declines, you may receive less from the 

Plan than you and the Company contributed. 

 With respect to the Employee Retirement Income Security 

Act of 1974, ("ERISA"), 29 U.S.C. § 1001 et seq. (1985 & Supp. 

1995), the 1988 and 1990 prospectuses for the Plans pointed out: 

the Plan is subject to some, but not all, of the provisions of 

the [Act] . . . which [a]mong other things . . . set minimum 

standards of fiduciary responsibility, establish minimum 

standards for participation and vesting, and require that each 

member be furnished with an annual report of financial condition 

and a comprehensive description of the member's rights under the 

Plan. 

The Plans' SPDs informed the participants: 

you are entitled to certain rights and 

protections under [ERISA] . . . . In 

addition to creating rights for Plan 

participants, ERISA imposes duties upon the 

people who are responsible for the operation 

of employee benefit plans. The people who 

operate the [Unisys Savings Plan, the Unisys 

Pension Plan, RIP, and RIP II], called 

`fiduciaries' of the Plans, have a duty to 

[operate] prudently, in your interest and 

that of all members and beneficiaries. 

 After the prospectuses and the SPDs were distributed, 

the Investment Committee received correspondence in 1988 and 1989 

from individual participants, including Henry Zylla, the 
17 

president of one of Unisys' local unions who wrote on behalf of 

the union's members, questioning whether Executive Life GICs 

should have been purchased for the Plans, given the insurer's 

high risk investments. In responding correspondence, Unisys 

stated that the Committee did not invite "risky" companies to its 

GIC bids, that its GIC selection process continuously emphasized 

"safety" and that all of the contracts it selected for the GIC 

Funds carried investment-grade credit ratings. 

 In January of 1990, some two years after Unisys' last 

Executive Life GIC purchase, Executive Life announced that it had 

written down $515 million in assets due to losses in its bond 

portfolio. Following this announcement, Executive Life's credit 

ratings were lowered from AAA to A by Standard & Poors; from A+

to A by A. M. Best; and from A1 to BAA2 by a third rating 

company, Moody's Investors Service. 

 Concerned that a flood of policy and other contract 

surrenders would cause a liquidity crisis that it would be unable 

to overcome, Executive Life began meeting with its investors to 

discuss its financial condition. When representatives of 

Executive Life and Unisys met on January 31, 1990, Executive Life 

articulated reasons for asserting that it would continue to meet 

its obligations and survive intact the situation it faced. 

 The next day, Thomas Penhale, an employee in Unisys' 

Human Resources department, sent to defendant Michael Losey, a 

Vice President of Human Resources, a copy of a newspaper article 

on Executive Life with a hand-written note, stating: "[defendant] 

John L[oughlin] got this today. It is not as `comforting' as 
18 

Exec[utive] Life led us to believe yesterday." In a memorandum to 

the Investment Committee dated February 2, 1990, however, White, 

who attended the January 31 meeting with Executive Life, 

expressed the view that the insurer "appears to be in reasonably 

good shape to weather the storm." 

 On February 5, 1990, members of the Investment 

Committee and other interested Unisys personnel met to discuss, 

inter alia, the questions Unisys had received from participants 

regarding Executive Life's status and the disclosures the company 

would make to the Plans' participants about the insurer. After 

some debate, the group decided that Unisys would disseminate 

information to all participants regarding Executive Life's 

condition through an updated prospectus and an accompanying cover 

letter. 

 In late March, 1990, Unisys sent to each participant a 

revised prospectus which stated generally that "an investment in 

any of the investment funds involves some degree of risk[]" and 

that many factors, including the "financial stability of the 

institutions in which assets are invested, the quality of the 

investment portfolios of those institutions, and other economic 

developments will affect . . . the value of a [participant's] 

investment in those funds." In bold letters, the prospectuses 

added that "[a]s a result, there is no assurance that at any 

point in time the value of an investment in any fund will not be 

lower than the original amount invested." 

 As for the Insurance Contract Fund, the revised 

prospectus stated that its "objective . . . is to preserve 
19 

capital while earning interest income[]", characterized its 

investments as "contractual obligation[s]" of the issuer, and 

pointed out that the "repayment of principal and interest is 

necessarily subject to the [issuer's] ability to pay . . . [such 

that] a downturn or loss in one or more areas of the [issuer's] 

investment portfolio could have an adverse effect on the 

stability of the [issuer]." Like the April 1, 1988 prospectus, 

the revised prospectus stated that "[Unisys] does not guarantee 

the repayment of principal or interest[]"; it also informed 

participants that the Investment Committee's guidelines required 

that Unisys purchase GICs from insurers rated "Secure" by 

Standard & Poors, or "Highest Investment Quality" by Moody's 

Invest[ors] Service, or "Superior" or "Excellent" by A. M. Best, 

but that "[c]ontracts issued by an insurance company or other 

institution whose rating is downgraded subsequent to selection 

may continue to be held in the fund." Finally, Executive Life 

was identified as one of the companies from which GICs had been 

purchased. 

 With the 1990 prospectus, participants received a 

letter from defendant Jack A. Blaine, a Vice President of Human 

Resources, encouraging participants to review the prospectus 

carefully and reminding them that Unisys would not give advice as 

to appropriate investment strategy. The letter responded to 

questions concerning the "troubled `junk bond' market and the 

effect, if any, that such problems would have on the [GIC Funds]" 

by pointing out that the repayment of principal and interest 

under GICs necessarily and entirely depended on the ability of 
20 

the insurer to meet its obligations; that Unisys did not 

guarantee the repayment; and that the financial stability of an 

insurer depended on the success of its own portfolio, such that 

an investment in junk bonds could have an adverse effect on 

financial stability. Lastly, the letter provided that only those 

institutions with a "secure" credit rating at the time of a 

contract bid would be selected for investment. 

 Although a draft of Blaine's letter had made specific 

mention of Executive Life, the letter the participants eventually 

received did not. The draft's reference to Executive Life's $515 

million asset writedown was removed; a statement disclosing the 

magnitude of the proportion of Fixed Income and Insurance 

Contract Fund investments in Executive Life was crossed out 

because it "could cause panic"; and a statement about informative 

news articles was deleted because it "could cause more concern." 

A comment on the draft stated: "The overall content and tone do 

[not] sooth[e] any fears and may in fact stir more interest in 

this subject than it deserves." 

 Blaine's letter was accompanied by an enclosure that 

listed all of the GICs held in the GIC Funds at that time, with 

investment value, maturity dates, and the bid day and current 

ratings of the issuing insurer. The enclosure revealed that 

Executive Life GICs had a combined book value of over $200 

million, maturity dates of June, 1991, June and September, 1992, 

and March, June and August, 1993. It also showed the recent 

decline in ratings that Executive Life had suffered. The 1990 

prospectus and the letter from Blaine with the enclosure were the 
21 

only communications Unisys made to all participants on a 

systematic basis subsequent to Executive Life's January, 1990 

announcement. 

 At about the same time, Unisys distributed to its 

benefits administration personnel a copy of a February 23, 1990 

letter from Fred Carr, Executive Life's Chairman and President, 

which portrayed the company as "healthy", "financially strong", 

and "capable of providing all the benefits promised[]", and 

written responses to specific questions about Executive Life for 

use in addressing concerns that individual participants directed 

their way. According to Losey's deposition testimony, individual 

participants who asked employees in the Human Resources 

department "[w]ell, gee, how many people ever lost their money in 

this kind of thing[?]" would be told, "I don't remember one time 

they even halfway defaulted." In March, 1990, Unisys also met 

with union employees and responded to participants' inquiries 

about Executive Life's financial status. 

 Unisys did not, however, disclose two decisions it had 

reached: one involving its chairman's retirement annuity and the 

second, an Investment Committee resolution. With respect to 

the first, a few months after sending the revised prospectus to 

participants, Unisys replaced a $500,000 retirement annuity 

issued by Executive Life for Unisys' then Chairman, Michael 

Blumenthal, with an annuity from another insurer at some expense 

to the company. The second matter occurred at an Investment 

Committee meeting on August 10, 1990, during which was discussed, 

inter alia, the course of action the Plans would take in the 
22 

event of a Executive Life default. The Committee ultimately 

resolved "that in the event of a default in any of the guaranteed 

investment contracts . . . distribution to plan participants will 

be reduced by that portion of the participant's account held in 

the defaulted contract." 

 Seeking to reduce the waiting period for asset 

transfers between "non-competing" funds and the GIC Funds from 

twelve months to six, Unisys contacted the issuers from whom GICs 

had been purchased and asked that they agree to appropriate 

contract modifications. In exchange for Executive Life's consent 

to a waiting period reduction in the contracts it had issued to 

the Plans, Unisys executed a letter agreement on October 17, 1990 

which provided in pertinent part: 

Unisys Corporation hereby further agrees that 

neither it nor its affiliates, employees, 

agents or other representatives will 

communicate with Plan participants regarding 

the financial condition or prospects of 

Executive Life nor issue any other 

communication regarding Executive Life which 

could be reasonably viewed as attempting to 

influence the investment choices of Plan 

participants without first obtaining 

Executive Life's written approval of such 

communication. In the event such prior 

written approval is not obtained, Executive 

Life may elect to not honor employee requests 

for withdrawals or reallocations provided 

that Executive Life reasonably believes that 

such requests were the direct result of such 

communication. 

 During this time, Executive Life's condition was widely 

reported in the financial press. Eventually, on April 11, 1991, 

the California Commissioner of Insurance seized Executive Life, 
23 

placing it in conservatorship, and on April 12, 1991, issued a 

moratorium on all payments from the insurer. As a result, Unisys 

isolated and froze the balance in any participant account 

invested in Executive Life by way of the Fixed Income and/or 

Insurance Contract Funds. At this time, 30% of the Fixed Income 

Fund and 7% of the Insurance Contract Fund were invested with the 

insurer. On December 6, 1991, the Superior Court of California 

declared Executive Life insolvent. 

 In 1991, several classes composed of Unisys employees 

who participate in one of the Plans and have account balances 

invested in Executive Life and the unions which represent Unisys 

employees commenced twelve separate actions against Unisys, the 

Investment and Administrative Committees of the Unisys Board of 

Directors and individuals who allegedly had served on one or both 

of the Committees. 

 By Pretrial Order dated November 4, 1991, the twelve 

cases were consolidated for all purposes, except trial. Pursuant 

to this Order, on November 25, 1991, the plaintiffs filed a three 

count second amended consolidated class action complaint against 

the above-named defendants.0 In Count I, all of the plaintiffs 

assert under sections 1045, 1104, 1105, 1109 and 1132 of ERISA, 

that Unisys breached fiduciary duties: by investing in Executive 

Life GICs; by failing to monitor the investments and divest them 

 

0 In their briefs, the defendants refer to themselves 

collectively as "Unisys". We will adopt that designation from 

this point forward. 
24 

from the Plans;0 by failing to diversify the GIC Funds' assets; 

and by failing to provide adequate disclosures to participants 

regarding "the composition of the portfolios" of the Fixed Income 

and Insurance Contract Funds and the "status of Executive Life's 

financial condition and the effect of [the insurer's] insolvency 

on their investment. . . ." In Count II, they assert that Unisys 

violated ERISA's reporting and disclosure requirements set forth 

in sections 1021(a), 1022(a)(1),(b) and 1023(b) by not furnishing 

an adequate summary plan description and an annual or other 

periodic report which would have apprised the plaintiffs that 

investments in the Fixed Income and Insurance Contract Funds were 

in jeopardy due to Executive Life's financial condition. In 

Count III, the union plaintiffs claim that Unisys' decision to 

invest in Executive Life and the actions it took when the insurer 

was placed in conservatorship breached certain collective 

bargaining agreements in violation of section 301 of the Labor 

Management Relations Act, 1947, 29 U.S.C. § 141 et seq. (1973 & 

Supp. 1995). 

 In answer to the plaintiffs' ERISA claims, Unisys 

denied the allegations in the second amended complaint and 

asserted by way of a defense that 29 U.S.C. § 1104(c), which 

provides in part that "no person who is otherwise a fiduciary 

shall be liable under [Part 4 -- Fiduciary Responsibility] for 

any loss, or by reason of any breach, which results from [a] 

 

0 It appears from the plaintiffs' briefs that they no 

longer pursue their allegations that Unisys breached fiduciary 

duties by failing to monitor the Executive Life investments and 

divest them from the Plans. 
25 

participant's or beneficiary's exercise of control [over the 

assets in his account]", relieves it of liability. 

 On July 22, 1994, Unisys filed a motion for summary 

judgment, requesting, inter alia, that judgment be entered in its 

favor as to all counts of the second amended complaint. 

 On January 25, 1995, the district court granted Unisys' 

motion on the plaintiffs' ERISA claims (Counts I and II) and 

denied the motion as to the union plaintiffs' Labor Relations 

Management Act claim (Count III).0 In its opinion, the district 

court began its analysis with what it designated as the 

plaintiffs' ERISA "`Adequate Information' and Control Claim"; 

after setting forth the elements of an adequate summary plan 

description, the court turned immediately to Unisys' section 

1104(c) defense. Considering whether the Plans' SPDs and 

 

0 In its motion for summary judgment, Unisys also 

requested that the plaintiffs' jury demand be stricken and argued 

that plaintiffs are not entitled to either punitive damages or 

other extra-contractual remedies under ERISA. Finding that the 

plaintiffs seek equitable relief under ERISA, the district court 

ruled that the plaintiffs are not entitled to a jury trial on 

Counts I and II. The court retained the union plaintiffs' jury 

trial demand on Count III because it held that the union 

plaintiffs' claim under the Labor Management Relation Act, 1947, 

29 U.S.C. § 141 et seq. (1973 & Supp. 1995), raises a legal 

issue. 

 The plaintiffs did not appeal the court's decision to 

grant summary judgment on Count II or its decision to strike the 

jury trial demand on Counts I and II. Likewise, Unisys did not 

appeal the district court's denial of summary judgment or its 

refusal to strike the jury demand as to Count III. 

 The court did not address Unisys' contention that ERISA 

does not allow the plaintiffs to recover punitive or other extracontractual damages. The parties have not raised this issue on 

appeal. 
26 

prospectuses provided "the specific warnings required by ERISA 

and case law to allow the participants to exercise control over 

their investments", the court concluded that Unisys had provided 

the "required information and warnings" by advising participants 

that "`[Unisys] does not guarantee the repayment of principal or 

interest[]'" and "[t]here were no guarantees on their 

investments." Noting that the Plans were "voluntary" and that 

"consistent with ERISA § 404(c), the plans gave participants the 

option to invest their contributions in one or more of six 

funds[]," with the SPDs stating that "`[y]ou direct how your 

before-tax contributions are invested[]'", the court also 

concluded that the participants had control over their assets. 

 Turning next to the plaintiffs' various claims in Count 

I for breach of ERISA's fiduciary duties, the district court 

disposed of the failure to disclose claim by holding that even 

though "`[t]he duty to disclose material information is the core 

of a fiduciary's responsibility'", a "`significant exception to 

the rules governing fiduciaries applies to plans that permit 

participants to exercise control over individual accounts 

assets.'" 

 With regard to the plaintiffs' assertion that the 

investment in Executive Life GICs was imprudent, the court ruled 

that "Unisys met the requirements of the `experienced prudent 

person[]'" having based its decision to invest in Executive Life 

on appropriate grounds: 

Unisys examined the financial statements of 

Executive Life, all of which indicated that 

it was sound. It sought the opinion of an 
27 

expert, who advised that Executive Life was a 

good investment. Most significantly, Unisys 

relied on the ratings of Standard & Poors and 

Moody's, both of which gave Executive Life 

high ratings of A+ or AAA. . . . With all 

of the information available to it at the 

time, Unisys clearly made prudent business 

and investment decisions. Plaintiffs cannot 

not now use 20/20 hindsight to impose 

liability on Unisys. 

The district court did not address the plaintiffs' claim in Count 

I that Unisys failed to satisfy ERISA's duty of diversification. 

 Judgment on Counts I and II of the second amended 

complaint was entered on January 26, 1995, and this consolidated 

appeal by the plaintiffs followed.0

II. 

 In examining the issues raised on appeal, we begin with 

settled principles of procedure involving summary judgment.0

 

09. Appeals in eleven of the twelve consolidated cases are 

from final judgments as the entry of summary judgment in Unisys' 

favor in those eleven finally resolved all of the claims between 

the parties. In the twelfth action, where the union plaintiffs 

assert the Labor Management Relations Act claim, the district 

court's grant of summary judgment for the defendants on only the 

ERISA claims does not dispose of all the claims between the 

parties. Accordingly, for purposes of appeal, the plaintiffs in 

that action sought the district court's certification pursuant to 

Fed. R. Civ. P. 54(b), which was granted. 

 Because the twelve cases were not consolidated for 

trial, even though the district court's order granting summary 

judgment to Unisys on Counts I and II of the second amended 

consolidated complaint does not dispose of all of the claims in 

the twelve consolidated actions, it is a final, appealable order 

within the meaning of 28 U.S.C. § 1291. Hall v. Wilkerson, 926 

F.2d 311, 314 (3d Cir. 1991) (holding that the dispositive factor 

in determining whether an order disposing of less than all claims 

in a consolidated case is appealable is whether the consolidation 

was for all purposes). 
28 

Summary judgment should be granted where the record reveals that 

no genuine issue of material fact exists for resolution at trial 

and the moving party is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(c). On summary judgment, the moving party 

need not disprove the opposing party's claim, but does have the 

burden to show the absence of any genuine issues of material 

 

0 On review of the district court's award of summary 

judgment, we are required to apply the same test the district 

court should have used initially. Goodman v. Mead Johnson & Co., 

534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038 

(1977). When deciding a motion for summary judgment, a district 

court's role remains circumscribed in that it is inappropriate 

for a court to resolve factual disputes and to make credibility 

determinations. Country Floors Inc. v. Partnership Composed of 

Gepner and Ford, 930 F.2d 1056, 1061 (3d Cir. 1991). Even where 

a case will be heard without a jury, the court on summary 

judgment does not sit as the trier of fact; it only determines 

whether there are issues which must be tried. Medical Inst. of 

Minnesota v. National Ass'n of Trade and Technical Schools, 817 

F.2d 1310, 1315 (8th Cir. 1987). To raise a genuine issue of 

material fact the opponent need not match, item for item, each 

piece of evidence proffered by the movant. Big Apple, BMW, Inc. 

v. BMW of N. Am. Inc., 974 F.2d 1358, 1362-63 (3d Cir. 1992), 

cert. denied, ___ U.S. ___, 113 S. Ct. 1262 (1993). In practical 

terms, if the opponent has exceeded the "mere scintilla" 

threshold and has offered a genuine issue of material fact, then 

the court cannot credit the movant's version of events against 

the opponent, even if the quantity of the movant's evidence far 

outweighs that of its opponent. Id. It thus remains the 

province of the factfinder to ascertain the believability and 

weight of the evidence. Id.

 The party opposing the motion is entitled to have his 

allegations taken as true, to receive the benefit of doubt when 

his assertions conflict with those of the movant and to have 

inferences from the underlying facts drawn in his favor. Big 

Apple, BMW, 974 F.2d at 1362-63. Ambiguities and conflicts in a 

deponent's testimony are generally matters for the fact-finder to 

sort out. Wilson v. Westinghouse Elec. Corp., 838 F.2d 286, 289 

(8th Cir. 1988). Any "unexplained gaps" in materials submitted 

by the moving party, if pertinent to the material issues of fact, 

justify denial of the motion. O'Donnell v. United States, 891 

F.2d 1079, 1082 (3d Cir. 1989). 
29 

fact. Celotex Corp v. Catrett, 477 U.S. 317, 323 (1985). If the 

movant meets this burden, then the opponent may not rest on 

allegations in pleadings, but must counter with specific facts 

which demonstrate that there exists a genuine issue for trial. 

Id. Further, even if the facts are undisputed, summary judgment 

may not be granted where there is disagreement over inferences 

that can be reasonably drawn from those facts. As in this case, 

when the nonmoving party will bear the burden of proof at trial, 

the moving party may meet its burden by showing that the 

nonmoving party has not offered evidence sufficient to establish 

the existence of an element essential to its case. Id. at 322. 

 With these principles in mind, we turn first to the 

plaintiffs' claim that Unisys committed several breaches of 

ERISA's fiduciary duties. We turn second to Unisys' assertion 

that the defense set out in section 1104(c) applies in this case. 

III. 

 Our analysis commences with the fiduciary 

responsibility provision of the Employee Retirement Income 

Security Act of 1974, ("ERISA"), 29 U.S.C. § 1001 et seq. (1985 & 

Supp. 1995). Section 1104(a) imposes several duties upon 

fiduciaries which include the duty of loyalty, the duty to act 

prudently, and the duty to diversify plan investments. Section 

1104(a) provides in pertinent part: 

§ 1104. Fiduciary duties

(a) Prudent man standard of care
30 

(1) Subject to sections 1103(c) and (d), 

1342, and 1344 of this title, a fiduciary 

shall discharge his duties with respect to a 

plan solely in the interest of the 

participants and beneficiaries . . . 

. . . . 

(B) with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent man 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; 

(C) by diversifying the investments of 

the plan so as to minimize the risk of large 

losses, unless under the circumstances it is 

clearly prudent not to do so[] . . . 

29 U.S.C. § 1104(a)(1)(B),(C). 

 When we apply section 1104(a) to the facts of a 

particular case, we remain mindful of ERISA's underlying 

purposes: to protect and strengthen the rights of employees, to 

enforce strict fiduciary standards, and to encourage the 

development of private retirement plans. 29 U.S.C. § 1001; H.R. 

Rep. No. 533, 93d Cong. 2d Sess. (1974), reprinted in 1974 U.S. 

Code Cong. & Admin. News 4639, 4639-43. We also bear in mind 

that Congress has instructed that section 1104 "in essence, 

codifies and makes applicable to . . . fiduciaries certain 

principles developed in the evolution of the law of trusts." S. 

Rep. No. 127, 93 Cong., 2d Sess. (1974), reprinted in 1974 U.S. 

Code Cong. & Admin. News 4838, 4865. 

A. 
31 

 In Count I of the second amended complaint, the 

plaintiffs allege, inter alia, that Unisys breached section 

1104(a)(1)(B) by making imprudent investments of plan assets in 

Executive Life. Unisys contends that, to the contrary, the 

evidence establishes that the purchases of the Executive Life 

GICs were prudent under ERISA as a matter of law, thereby 

entitling it to summary judgment. 

 Under the common law of trusts, a trustee is duty-bound 

"to make such investments and only such investments as a prudent 

[person] would make of his own property having in view the 

preservation of the estate and the amount and regularity of the 

income to be derived. . . ." Restatement (Second) of Trusts §227 

(1959). Further, a trustee is required to use due care, which 

means he must investigate the safety of the investment and its 

potential for income by securing reliable information, and may 

take into consideration the advice of qualified others, as long 

as he exercises his own judgment; to use the skill of a man of at 

least ordinary intelligence; and to use caution, with a view to 

the safety of the principal and to the securing of a reasonable 

and regular income. Id. cmts. (a) - (c), (e). Whether a trustee 

has acted properly in selecting an investment depends upon the 

circumstances at the time when the investment is made and not 

upon subsequent events. Thus, if at the time an investment is 

made, it is an investment a prudent person would make, there is 

no liability if the investment later depreciates in value. Id.

cmt. o. 
32 

 Consistent with these common law principles, the courts 

measure section 1104(a)(1)(B)'s "prudence" requirement according 

to an objective standard, focusing on a fiduciary's conduct in 

arriving at an investment decision, not on its results, and 

asking whether a fiduciary employed the appropriate methods to 

investigate and determine the merits of a particular investment. 

Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917-18 (8th Cir. 

1994); Fink v. National Savings and Trust Co., 772 F.2d 951, 955-

56 (D.C. Cir. 1985); Katsaros v. Cody, 744 F.2d 270, 279 (2d 

Cir.), cert. denied, 469 U.S. 1072 (1984); Donovan v. Mazzola, 

716 F.2d 1226, 1232 (9th Cir. 1983), cert. denied, 464 U.S. 1040 

(1984). In addition, the prudence requirement is flexible, such 

that the adequacy of a fiduciary's independent investigation and 

ultimate investment selection is evaluated in light of the 

"`character and aims'" of the particular type of plan he serves. 

Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983), cert. 

denied, 467 U.S. 1251 (1984).0 

 In this case, our in-depth analysis of the evidence 

convinces us that Unisys has failed to carry its burden on 

summary judgment of showing the absence of any genuine issue of 

 

0 Similarly, the Department of Labor regulation 

concerning the investment duties of ERISA fiduciaries provides 

that the requirements of section 1104(a)(1)(B) of the Employee 

Retirement Income Security Act of 1974, ("ERISA"), 29 U.S.C. 

§1001 et seq. (1985 and Supp. 1995), are satisfied if fiduciaries 

give "appropriate consideration to those facts and circumstances 

that, given the scope of such fiduciary's investment duties, the 

fiduciary knows or should know are relevant to the particular 

investment or investment course of action involved, including the 

role the investment plays in that portion of the plan's 

investment portfolio. . . ." 29 C.F.R. § 2550.404a-1(b)(i). 
33 

material fact as to whether its course of conduct and decision to 

invest in five-year Executive Life GICs in June and December of 

1987 and January of 1988 for the Fixed Income and Insurance 

Contract Funds satisfied ERISA's duty of prudence. 

 We begin with the most basic of ERISA's investment 

fiduciary duties, the duty to conduct an independent 

investigation into the merits of a particular investment. When 

David White, Unisys' Vice President of Capital Management and 

Trust Investments, was asked at his deposition to describe the 

evaluation he and his staff performed at the time of the June 9, 

1987, bid to satisfy themselves that Executive Life was 

financially sound, he responded that they depended on the 

research that he "believed" Unisys' consultant, Johnson & 

Higgins, had completed: 

Q. Other than the financial information 

provided to you by the companies and the 

ratings of the agencies of which you 

just spoke, did you have any other 

review done of the financial status of 

the insurance companies that were 

bidding? 

A. I don't know how to answer that clearly, 

but what was done was we relied on 

Murray's staff, also. It was conducted 

at his office. He, in this case -- we 

had never bid Executive Life, you know, 

for the Burroughs plan and it was 

Murray's relationship in effect and he 

had done, I believe, independent 

research. Otherwise, he would not have 

recommended Executive Life to us. So we 

had that recommendation. 
34 

 In his deposition, however, Murray Becker of Johnson & 

Higgins did not confirm that Johnson & Higgins provided research 

to White and his staff: 

Q. Did you have a research staff at Johnson 

& Higgins? 

* * * 

A. Research as to what? 

* * * 

Q. As to the insurance companies? 

A. Johnson & Higgins had a committee that I 

was not involved in that approved 

insurance companies that Johnson & 

Higgins was permitted to use. This was 

general for property casualty and life 

companies across the board. 

* * * 

Q. Were there individuals at the company 

whose responsibility it was to analyze 

the credit worthiness of various 

insurance companies? 

* * * 

A. Johnson & Higgins didn't represent 

itself as a credit-rating agency so it 

did not provide a credit research 

service. And in my part of Johnson & 

Higgins, we simply adopted a standard of 

recommending companies that were 

recommended -- that a client consider 

companies that had a Triple A rating, 

and not consider companies that didn't 

have a rating, or were rated below 

Triple A. 

 While we would encourage fiduciaries to retain the 

services of consultants when they need outside assistance to make 

prudent investments and do not expect fiduciaries to duplicate 
35 

their advisers' investigative efforts, we believe that ERISA's 

duty to investigate requires fiduciaries to review the data a 

consultant gathers, to assess its significance and to supplement 

it where necessary. In our view, a reasonable factfinder could 

infer from this evidence that Unisys failed to analyze the bases 

underlying Johnson & Higgins' opinion of Executive Life's 

financial condition and to determine for itself whether credible 

data supported Johnson & Higgins' recommendation that Unisys 

consider investing plan assets with the insurer. A reasonable 

factfinder could also conclude that Unisys passively accepted its 

consultant's positive appraisal of Executive Life without 

conducting the independent investigation that ERISA requires. 

 Likewise, the record calls into question the 

sufficiency of the investigation that White and William Heller 

and Robert Rehley, members of White's staff, conducted prior to 

the Executive Life GIC purchases that were made in December of 

1987 and January of 1988. Although the services of Johnson & 

Higgins had been terminated and another consultant had not been 

hired, White testified he did "nothing new" by way of research 

into Executive Life's finances between June and December of 1987. 

Heller and Rehley, when deposed, indicated that in connection 

with these purchases, their task was to keep current Unisys files 

on bidding insurers up-to-date. If, as the record suggests, 

Unisys' investigation consisted of nothing more than confirming 

that Executive Life's credit ratings had not changed since June, 

1987, a reasonable factfinder could find that the investigations 

for the second and final GIC purchase were deficient. 
36 

 Of course, the thoroughness of a fiduciary's 

investigation is measured not only by the actions it took in 

performing it, but by the facts that an adequate evaluation would 

have uncovered. Fink, 772 F.2d at 962 (Scalia, J., concurring in 

part and dissenting in part) ("[T]he determination of whether an 

investment was objectively prudent is made on the basis of what 

the trustee knew or should have known; and the latter necessarily 

involves consideration of what facts would have come to his 

attention if he had fully complied with his duty to investigate 

and evaluate." (emphasis in original)). In this regard, the 

plaintiffs presented evidence which showed that one who 

investigated Executive Life in 1987 and 1988 would have found, 

for example, that Moody's Investors Service had given Executive 

Life a rating which was notably lower than those assigned by 

Standard & Poors and A. M. Best; that the higher ratings that 

Executive Life had received were being questioned in some 

financial circles; that at least one reputable consultant had 

strongly recommended against investments in Executive Life 

annuity contracts; and that Executive Life's reinsurance 

practices were under scrutiny by state regulators. The record, 

however, does not reveal which of these items Unisys may have 

considered, and raises a question as to what conclusion 

concerning an investment in Executive Life a prudent fiduciary 

would have reached had they come to its attention. 

 Turning to the credit ratings upon which Unisys 

admittedly relied in large measure to make and defend its 

decisions to invest in Executive Life, we observe that here, too, 
37 

the record raises genuine issues as to whether Unisys' reliance 

was justified and informed. As noted earlier, Becker advised 

White and his staff that a AAA rating from Standard & Poors was a 

valid indicator of Executive Life's economic vitality only if 

junk bonds did not exceed 35% of its bond portfolio. When 

deposed, Becker testified that Executive Life's representatives 

had reported in June of 1987 that the insurer met this standard; 

White, who was ultimately responsible for assessing Executive 

Life's prospects, however, was unable at his deposition to recall 

the percentage of the insurer's junk bond holdings at relevant 

times and guessed that the percentage was under "forty or fifty". 

Thus, whether White was, in fact, cognizant of this significant 

item of information when he decided to invest in Executive Life 

is for the factfinder to decide. Moreover, when Heller was asked 

during his deposition what he knew about the bases underlying 

Standard & Poors ratings, he testified to a limited 

understanding, stating that "[Murray Becker] was the most 

knowledgeable of anyone . . . of the methodology of Standard & 

Poors. We would not have been knowledgeable in that area." 

Whether the rating was a reliable measure of Executive Life's 

financial status under the circumstances and whether Unisys was 

capable of using the rating effectively are, therefore, matters 

which must be decided at trial. See Donovan v. Cunningham, 716 

F.2d at 1474 ("An independent appraisal is not a magic wand that 

fiduciaries may simply waive over a transaction to ensure that 

their responsibilities are fulfilled. It is a tool and like all 

tools, is useful only if used properly."). 
38 

 When we focus on the five-year duration and interest 

terms of the Executive Life GICs, we find additional issues for 

trial. The record is uncontroverted that, in June of 1987, 

Becker advised in favor of the purchase of an Executive Life GIC 

of only three-years duration and that White did not heed his 

advice as to the contract's duration; the record does not 

resolve, however, whether the relative merits of these different 

maturity dates, which could have had a significant impact on the 

risk associated with the investment, were debated and to what 

result. Rehley recalled some discussion on the issue; Heller did 

not believe that such a discussion took place; and Becker could 

not remember whether any consideration, one way or the other, was 

given to the matter. We believe that if this debate did not take 

place, a reasonable factfinder could conclude that Unisys did not 

adequately deliberate its investment decision and that had it 

done so, it would have rejected a long-term investment in 

Executive Life. Moreover, that White sought to maximize interest 

rates by investing in the five-year GICs is not disputed; whether 

he inappropriately sacrificed security in making investments for 

Funds where the preservation of capital was of paramount concern 

is yet another issue for trial. The dramatic disparity between 

the interest rates that Executive Life offered and those offered 

by other successful bidders could lead a factfinder to infer that 

the risk accompanying Executive Life's yields was unacceptably 

high. 

 The record also raises a question as to whether Unisys 

was equipped to conduct GIC bids unassisted and whether the 
39 

absence of written guidelines for the bidding process impeded its 

ability to make prudent investment decisions. As noted, when 

questioned about credit ratings, Heller testified that he and his 

colleagues lacked a certain expertise, and when questioned about 

the "negative consequence" of the absence of written guidelines, 

he testified: "[T]here was the possibility that we would be 

placing money with companies that would subsequently run into 

trouble. There was also the fear that too much money could be 

with any one issuer." 

 Finally, we note a report prepared by George M. 

Gottheimer, Jr., an expert retained by the plaintiffs, opining 

that the purchases of long-term Executive Life GICs in 1987 and 

1988 were imprudent.0 According to Mr. Gottheimer, Unisys 

breached its fiduciary duties by not adequately investigating the 

financial condition of Executive Life, by not having guidelines 

against which to measure the insurer; by relying solely on the 

credit ratings Executive Life had received; by placing almost 

 

0 Unisys argues that we may not consider Mr. Gottheimer's 

report because it was not in the form of a sworn affidavit as 

required by the Fed. R. Civ. P. 56(e). Unisys, however, did not 

move to strike nor did it otherwise object to Dr. Gottheimer's 

report in the district court. Indeed, Unisys placed the report 

in the record. 

 

 We agree with the plaintiffs and our sister courts of 

appeals that Rule 56 defects are waived where they are not raised 

in the district court. See, e.g., Humane Soc. of The United 

States v. Babbitt, 46 F.3d 93, 96 n. 5 (D.C. Cir. 1995) (Rule 56 

defects are waived where motions to strike are not filed); 

DeCintio v. Westchester County Medical Center, 821 F.2d 111, 114 

(2d Cir.), cert. denied, 484 U.S. 965 (1987) (citing "unanimous 

accord" on the question in five other courts of appeals). We 

think this rule is especially applicable given that it was Unisys 

which submitted the report to the district court. 
40 

exclusive emphasis on yield; and by not employing the services of 

a consultant for all of the purchases in view of its lack of 

knowledge and skill. Mr. Gottheimer's opinion, based on his 

interpretation of the deposition testimony and exhibits he 

reviewed, is itself some evidence of Unisys' imprudence, capable 

of defeating Unisys' motion for summary judgment. 

 We thus conclude that in response to Unisys' motion for 

summary judgment, the plaintiffs raised genuine issues of 

material fact to support their claim that the investment of plan 

assets in Executive Life GICs violated section 1104(a)(1)(B)'s 

duty of prudence. 

 

 B. 

 We turn next to the plaintiffs' claim in Count I that 

Unisys violated ERISA's fiduciary duty set forth in 29 U.S.C. 

§1104(a)(1)(C), to "diversify[] the investments in the plan so as 

to minimize the risk of large losses", by placing an excessive 

amount of plan assets in Executive Life GICs. 

 As a general proposition, ERISA's duty to diversify 

prohibits a fiduciary from investing disproportionately in a 

particular investment or enterprise. A Congressional Committee 

report on the Act's diversification provision provides: 

A fiduciary usually should not invest the 

whole or an unreasonably large proportion of 

the trust property in a single security. 

Ordinarily the fiduciary should not invest 

the whole or an unduly large proportion of 

the trust property in one type of security or 

in various types of securities dependent upon 

the success of one enterprise or upon 
41 

conditions in one locality since the effect 

is to increase the risk of large losses. 

 

H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess. (1974), reprinted 

in 1974 U.S. Code Cong. & Admin. News 5038, 5085.0

 ERISA's duty to diversify is not measured by hard and 

fast rules or formulas. Congress has instructed that "[t]he 

degree of investment concentration that would violate this 

requirement to diversify cannot be stated as a true percentage, 

because a prudent fiduciary must consider the facts and 

circumstances of each case. The factors to be considered include 

(1) the purposes of the plan; (2) the amount of the plan assets; 

(3) financial and industrial conditions; (4) the type of 

 

0 Section 1104(a)(1)(C) of ERISA in large part reflects 

the fiduciary duty set forth in the Restatement (Second) of 

Trusts: 

§228. Distribution of Risk of Loss

Except as otherwise provided by the terms of 

the trust, the trustee is under a duty to 

distribute the risk of loss by reasonable 

diversification of investments, unless under 

the circumstances it is prudent not to do so. 

* * * 

Comment:

a. Duty to diversity investments. The 

trustee is under a duty to the beneficiary to 

exercise prudence in diversifying the 

investments so as to minimize the risk of 

large losses, and therefore he should not 

invest a disproportionately large part of the 

trust estate in a particular security or type 

of security. It is not enough that each of 

the investments is a proper investment. . . . 

Restatement (Second) of Trusts, § 228, cmt. a (1959). 
42 

investment, whether mortgages, bonds or shares of stock or 

otherwise; (5) distribution as to geographic location; (6) 

distribution as to industries; (7) the dates of maturity." Id.

at 5085. Further, the Act's legislative history informs that a 

plan may invest wholly in insurance or annuity contracts, since 

generally an insurance company's assets are to be invested in a 

diversified manner. Id. Finally, if a plaintiff proves a 

failure to diversify, the burden shifts to the defendant to 

demonstrate that nondiversification was nonetheless prudent. Id.

at 5084. 

 Before we consider the substance of the plaintiffs' 

failure to diversify charge and whether summary judgment was 

properly entered in Unisys' favor, we must determine how the duty 

set forth in section 1104(a)(1)(C) is measured in the context of 

the kind of Plans before us, which are comprised of a number of 

discrete funds, each with its own distinct type of investment. 

Not surprisingly, the parties maintain diametrically-opposed 

positions on the issue: Unisys argues that we must measure 

diversification by considering all of the investments the Plans 

hold, and the plaintiffs urge evaluation of diversification by 

considering the investments solely in the Fixed Income and 

Insurance Contract Funds. 

 Looking first to ERISA's language, we find little 

guidance; the Act refers only to a fiduciary's duty to diversify 

the "plan's" investments. 29 U.S.C. § 1104(a)(1)(C). ERISA's 

legislative history, however, indicates that a fiduciary's 

performance of the duty may be measured by the diversity it has 
43 

achieved in a particular investment vehicle and, where the 

management of a plan's investments is distributed among several 

managers, in the segment of the plan for which it has 

responsibility. Congress stated: 

[A]lthough the fiduciary may be authorized to 

invest in industrial stocks, he should not 

invest a disproportionate amount of the plan 

assets in the shares of corporations engaged 

in a particular industry. If he is investing 

in mortgages on real property he should not 

invest a disproportionate amount of the trust 

in mortgages in a particular district or on a 

particular class of property so that a 

decline in property values in that district 

or of that class might cause a large loss. 

An investment manager, A, is responsible for 

10% of the assets of a plan and is instructed 

by the named fiduciary or trustee to invest 

solely in bonds; another investment manager, 

B, is responsible for a different 10% of the 

assets of the same plan and instructed to 

invest solely in equities. . . . In these 

circumstances, A would invest solely in bonds 

in accordance with his instructions and would 

diversify the bond investments in accordance 

with the diversification standard, the 

prudent man standard, and all other 

provisions applicable to A as a fiduciary. 

Similarly, B would invest solely in equities 

in accordance with his instructions and these 

standards. 

H.R. Cong. Rep. No. 1280, reprinted in 1974 U.S. Code Cong. & 

Admin. News at 5084. 

 In addition to Congress' direction, we believe the case 

of GIW Indus., Inc. v. Trevor, Stewart, Burton & Jacobsen, Inc., 

895 F.2d 729, 733 (11th Cir. 1990), is instructive. There the 

plaintiff maintained a profit sharing plan for its employees 

which consisted of three funds. Plan participants allocated 
44 

their respective account balances among the funds and were 

permitted to change their investment election or to withdraw from 

the plan once a year. The plaintiff hired the defendant to 

manage the investments of Fund A, an asset allocation account 

which was invested in fixed income securities, equities of 

publicly traded companies and money market instruments. The 

defendant adopted a strategy to invest Fund A assets in primarily 

long-term government bonds, which were highly liquid and carried 

a minimal credit risk. Due to a series of required cash 

disbursements, however, the defendant was required to sell Fund A 

assets at a loss. The plaintiff filed suit, alleging that, inter

alia, the defendant breached its fiduciary duty under ERISA to 

diversify the Fund's investments. 

 On appeal from the judgment entered against it, the 

defendant argued that its obligation to diversify was properly 

measured by considering the investments of the entire plan, not 

merely the investments in Fund A. The court of appeals disagreed 

and affirmed the judgment, reasoning: 

It is undisputed, though, that [the 

defendant] exercised no control over any fund 

other than Fund A. Moreover, Fund A could 

not draw upon the other funds for the purpose 

of cash pay-outs. Even if the entire plan 

were to be considered in determining whether 

the diversification requirement has been met, 

[the defendant] made no investigation of the 

other funds, either. Mr. Burton, whose 

testimony the district court credited, 

declared that the existence of Fund D did not 

influence how [the defendant] invested the 

assets of Fund A. 

Id. at 733. 
45 

 Although the facts in this case and GIW Industries

differ in certain respects,0 we find the approach taken by the 

Court of Appeals for the Eleventh Circuit applicable, persuasive, 

and in keeping with Congress' intent in section 1104(a)(1)(C). 

Here, as there, Unisys was responsible for investing a portion of 

the Plans' assets in designated investments. Similarly, the 

investments that other managers made for the Plans in other 

investment areas had no bearing on the investment choices Unisys 

made for the Funds it managed. Moreover, plan-wide investments 

were not available (and it would appear could not be available) 

to offset losses sustained by the Fixed Income and Insurance 

Contract Funds as a result of Executive Life's failure. Thus, 

the risk of loss which section 1104(a)(1)(C) aims to minimize was 

not distributed among the Plans' total holdings; it was, instead, 

spread only among the GIC Funds' contracts. We, therefore, 

conclude that under these circumstances, Unisys' satisfaction of 

the duty to diversify is properly assessed by examining the 

concentration of Executive Life investments in the Fixed Income 

and Insurance Contract Funds. 

 Because the record is incomplete in critical respects, 

however, we cannot determine whether Unisys is entitled to 

 

0 We note that the fund at issue in GIW Indus., Inc. v. 

Trevor, Stewart, Burton & Jacobsen, Inc., 895 F.2d 729 (11th Cir. 

1990), in contrast to the GIC Funds here, was, by definition, to 

include a variety of investment types -- fixed income securities, 

equities of publicly traded companies and money market 

instruments. Id. at 730. Thus, it would seem that the 

defendant's investment strategy -- to invest primarily in longterm bonds -- violated the funds inherent diversification 

requirement. In our view, this fact difference is not 

significant to our analysis. 
46 

summary judgment on this aspect of the plaintiffs' case. For 

example, as the record does not reveal the rationale for Unisys' 

rule not to place more than 20% of GIC Fund assets with a single 

issuer, the process by which Unisys may have applied the rule to 

the GIC purchases at issue, or the analysis that Unisys may have 

undertaken of the factors Congress has directed prudent 

fiduciaries to consider, we cannot decide whether reasonable 

minds could differ as to the adequacy of Unisys' actions with 

regard to diversification. We are also left to ponder how Unisys 

attempted to maintain a steady degree of diversification where 

due to the reinvestment of proceeds from the Fixed Income into 

the Insurance Contract Fund, the percentage of assets in 

Executive Life contracts in each Fund changed over time or why, 

as White testified, Unisys assessed diversification according to 

the Funds' aggregate exposure to Executive Life, and not 

according to the exposure in each Fund.0 Moreover, assuming that 

the concentration of assets placed with Executive Life in the 

Fixed Income or the Insurance Contract Fund was excessive, the 

record does not reveal whether, as section 1104(a)(1)(C) permits, 

there may have been special circumstances excusing Unisys from 

diversifying GICs. Finally, by its terms, ERISA requires a 

fiduciary to diversify so as to avoid "large losses". Because the 

 

0 In December of 1988, the record shows that 21.7% of the 

Fixed Income Fund and 19.18% of the Insurance Contract Fund were 

invested in Executive Life; as of March 31, 1991, shortly before 

the plaintiffs' account balances were frozen, 30% of the Fixed 

Income Fund and 7% of the Insurance Contract Fund were invested 

in the insurer, with exposure on an aggregate basis at about 15%. 
47 

amount of losses the Fixed Income and Insurance Contract Funds 

will ultimately suffer has remained uncertain, the district court 

stayed discovery on the issue of damages; the summary judgment 

materials submitted to the district court by the parties were, by 

order, limited to liability issues. We further understand that 

discovery on damages issues proceeded after Unisys' summary 

judgment motion was filed. Obviously, whether "large losses" 

were avoided and in turn, whether Unisys satisfied its burden on 

summary judgment as to the duty to diversify, cannot be 

determined on the record before us. 

 We, therefore, conclude that Unisys' request for 

summary judgment in its favor on the plaintiffs' section 

1104(a)(1)(C) failure to diversify claim was premature. Upon 

remand, the record may be developed and a motion for summary 

judgment may be judged on the basis of the principles we have set 

forth. 

C. 

 We now turn our attention to the plaintiffs' claim in 

Count I that Unisys breached section 1104(a)'s fiduciary duty to 

disclose. As we understand it, the plaintiffs' claim is that 

Unisys misrepresented the risks associated with investing monies 

in the Fixed Income and Insurance Contract Funds through 

misleading or incomplete communications regarding the Funds' 

portfolio once the Executive Life GICs had been purchased, as 

well as Executive Life's financial condition in 1990. In view of 

the district court's ruling that Unisys' disclosure obligations 
48 

are defined solely by section 1104(c), the threshold issue we 

must consider is whether the plaintiffs' claim under section 

1104(a) may continue. 

 Looking for guidance to our cases regarding ERISA's 

fiduciary duty to inform, we note that we have repeatedly held 

that a fiduciary may not materially mislead those to whom section 

1104(a)'s duties of loyalty and prudence are owed. In re Unisys 

Corp. Retiree Medical Benefit "ERISA" Litigation, 57 F.3d 1255, 

1261 (3d Cir. 1995); Curcio v. John Hancock Mut. Life Ins. Co., 

33 F.3d 226, 238 (3d Cir. 1994); Bixler v. Central Pennsylvania 

Teamsters Health and Welfare Plan, 12 F.3d 1292, 1300 (3d Cir. 

1994); Fisher v. Philadelphia Elec. Co., 994 F.2d 130, 135 (3d 

Cir.), cert. denied, ___ U.S. ___, 114 S. Ct. 622 (1993). Thus, 

in Fisher, where the plaintiffs alleged that the defendant 

misrepresented its intention to establish a "retirement 

sweetener", we held that under section 1104(a) "[a] plan 

administrator may not make affirmative material 

misrepresentations to plan participants when asked about changes 

to an employee pension benefits plan. Put simply, when a plan 

administrator speaks, it must speak truthfully." 994 F.2d at 

135. We also concluded that a misrepresentation was "material" 

if there was a "substantial likelihood that it would mislead a 

reasonable employee in making an adequately informed decision 

about if and when to retire." Id. Because the content of the 

communications at issue and whether such communications 

constituted affirmative, material misrepresentations were 
49 

questions of fact, we reversed the summary judgment that had been 

entered for the defendant and remanded the case for trial. Id. 

 Shortly thereafter, in Bixler v. Central Pennsylvania 

Teamsters Health and Welfare Fund, 12 F.3d 1292 (3d Cir. 1994), 

where the plaintiff claimed that her deceased husband's employer 

had engaged in repeated misrepresentations that prevented her 

from electing to continue medical coverage under COBRA, we 

considered "to what extent a fiduciary's alleged misinformation 

or failure to provide relevant information constitutes a breach 

of fiduciary duty under § [11]04(a)." Id. at 1300. Guided by, 

inter alia, section 173 of the Restatement (Second) of Trusts,0

we concluded that "[the] duty to inform is a constant thread in 

the relationship between beneficiary and trustee; it entails not 

only a negative duty not to misinform, but also an affirmative 

duty to inform when the trustee knows that silence might be 

harmful." Id. We acknowledged that "the duty recognizes the 

disparity of training and knowledge that potentially exists 

 

0 Under the Restatement (Second) of Trusts: 

d. Duty in the absence of a request by 

the beneficiary. Even if the trustee is 

not dealing with the beneficiary or the 

trustee's own account, he is under a 

duty to communicate to the beneficiary 

material facts affecting the interest of 

the beneficiary which he knows the 

beneficiary does not know and which the 

beneficiary needs to know for his 

protection in dealing with a third 

person. 

Restatement (Second) of Trusts § 173, cmt. d, cited in, Bixler v. 

Central Pennsylvania Teamsters Health and Welfare Fund, 12 F.3d 

1292, 1300 (3d Cir. 1994). 
50 

between a lay beneficiary and a trained fiduciary[]", and we 

further concluded that "the fiduciary's obligations will not be 

excused merely because [the beneficiary] failed to comprehend or 

ask about a technical aspect of the plan." Id. Finding evidence 

from which a trier of fact could have inferred that the employer 

knew that the plaintiff was left with substantial unpaid medical 

expenses and that she could have received reimbursement for those 

expenses under the employer's plan by signing and returning the 

COBRA notice her husband received, we viewed the employer's 

failure to advise the plaintiff of COBRA coverage as a potential 

breach of fiduciary duty. This was so even though the plaintiff 

contacted the employer while the COBRA election period was open 

and inquired only about the availability of death benefits. Id.

at 1302. Thus, we held: "[I]f indeed [the employer] was acting 

in a fiduciary capacity, it acted under a duty to convey complete 

and accurate information that was material to [the plaintiff's] 

circumstance. Her circumstance was clearly broader than her 

inquiry". Id. at 1302-03. Reversing the grant of summary 

judgment for the defendant and remanding, we instructed the 

district court to determine whether "`material information' may 

have included more than the mere fact that the [employer] did not 

offer life insurance . . . ." Id. at 1303. 

 Most recently, In re Unisys Corp. Retiree Medical 

Benefit "ERISA" Litigation, 57 F.3d 1255 (3d Cir. 1995), we 

reaffirmed that an ERISA fiduciary has a duty under section 

1104(a) to convey complete and accurate information when it 

speaks to participants and beneficiaries regarding plan benefits. 
51 

There retired employees were informed by summary plan 

descriptions and company representatives that they had lifetime 

medical benefits. Nonetheless, relying on a reservation of 

rights clause in the plans that gave it the right to terminate 

"at any time" or for "any reason", the company announced its 

decision to terminate all existing medical benefits plans and 

replace them with a new plan that altered post-retirement medical 

benefits in substantial measure. The retirees filed a class 

action against the company, asserting, inter alia, that the 

company breached its fiduciary duty under ERISA by affirmatively 

misleading plan participants about the duration of their retiree 

medical benefits. Noting that our prior decisions "firmly 

establish that when a plan administrator affirmatively 

misrepresents the terms of a plan or fails to provide information 

when it knows that its failure to do so might cause harm, the 

plan administrator has breached its fiduciary duty to individual 

plan participants and beneficiaries", id. at 1264, we upheld the 

district court's decision to permit the plaintiffs' breach of 

fiduciary duty claim to proceed where the evidence established 

"that the [defendant] company actively misinformed its employees 

by affirmatively representing to them that their medical benefits 

were guaranteed once they retired, when in fact the company knew 

this was not true and that employees were making important 

retirement decisions relying upon this information . . . ." Id.

at 1266-67.0

 

0 In In Re Unisys Corp. Retiree Medical Benefit "ERISA" 

Litigation, 57 F.3d 1255 (3d Cir. 1995), we also reaffirmed our 
52 

 Contrary to the district court's ruling, we believe 

these principles may apply in the instant case, even if the Plans 

fall within the purview of 29 U.S.C. § 1104(c). By its terms, 

section 1104(c) relieves fiduciaries of liability for breaches of 

fiduciary duty which result from a participant's or a 

beneficiary's exercise of control; it does not define nor does it 

relieve fiduciaries of section 1104(a)'s duties in the first 

instance. Therefore, the question we face at this juncture is 

not whether section 1104(c), even assuming it applies, exempts 

Unisys from section 1104(a)'s disclosure duty; it is whether the 

duty as we have defined it extends to the circumstances presented 

in this case. Although our prior decisions concerned allegations 

of material misrepresentations relating to the terms of a plan or 

the benefits to which participants or beneficiaries were 

entitled, we hold that their underlying rationale applies with 

the same force here. We can discern no reason why our 

admonitions that "when a [fiduciary] speaks, it must speak 

truthfully[]", Fisher, 994 F.2d at 135, and when it communicates 

with plan participants and beneficiaries it must "convey complete 

and accurate information that [is] material to [their] 

circumstance[]", Bixler, 12 F.3d at 1302-03, should not apply to 

alleged material misrepresentations made by fiduciaries to 

participants regarding the risks attendant to a fund investment, 

where, as here, the participants were charged with directing the 

 

conclusion in Bixler, 12 F.3d at 1298, that under section 

1132(a)(3) of ERISA, equitable relief is available to an 

individual harmed by a breach of fiduciary duty. 57 F.3d at 

1266-69. The issue of relief is not raised in this appeal. 
53 

investment of their contributions among the Plans' various funds 

and the benefits they were ultimately provided depended on the 

performance of their investment choices. We also hold that in 

this context, a misrepresentation is "material" if there was a 

substantial likelihood that it would have misled a reasonable 

participant in making an adequately informed decision about 

whether to place or maintain monies in the Fixed Income and/or 

Insurance Contract Funds. See Fisher, 994 F.2d at 135. 

 It is important to note what we have not decided. As 

the uncontroverted record reveals that Unisys elected and indeed 

intended to communicate with participants about the risks 

accompanying investments in the Fixed Income and Insurance 

Contract Funds and Executive Life's financial condition in 1990,0

we have not determined whether Unisys had a duty under section 

1104(a) to communicate anything at all to the Plans' participants 

about these matters in the first place. We also note that we do 

not view the plaintiffs as claiming, nor do we hold, that Unisys 

was obligated to give investment advice, to opine on Executive 

Life's financial condition or to predict Executive Life's 

eventual demise. See id. at 135 (citations omitted) ("[W]e 

 

0 Unisys does not dispute that it made disclosures to 

participants, and describes the information it disseminated as 

intended to disclose the "nature of the [Plan's Executive Life 

holdings] and the attendant risks" and the "developments 

surrounding Executive Life . . . ." (See Memorandum in Support 

of Defendants' Motion for Summary Judgment and to Strike Jury 

Demand, pp. 17, 24). As in the district court, on appeal Unisys 

discusses the adequacy of its disclosures only in terms of 

section 1104(c). 
54 

hasten to add that ERISA does not impose a `duty of clairvoyance' 

on fiduciaries."). 

 Turning our attention to the record, we find a number 

of triable issues. Clearly there is evidence of several 

communications made by Unisys to plan participants on an 

individual, group or systematic basis regarding the nature of and 

risks associated with investments in the Fixed Income and 

Insurance Contract Funds and Executive Life's downturn.0 Whether 

the communications constituted misrepresentations and whether 

they were material under the principles we have articulated are 

questions of fact that are properly left for trial. Id. at 135. 

See Curcio, 33 F.3d at 236 (holding that misleading summary plan 

description coupled with misrepresentations in an audiotape and a 

pamphlet supported a claim for breach of fiduciary duty). At 

this point, we observe that what was stated, as well as what was 

left unstated, by Unisys in its communications to plan 

participants is relevant. In our view, while Unisys was not 

obligated to share with participants everything it knew about 

GICs and Executive Life, it was obligated to impart to 

participants material information of which it had knowledge that 

was sufficient to apprise the average plan participant of the 

risks associated with investing in the Fixed Income and Insurance 

 

0 For the first time on appeal Unisys asserts that the 

plaintiffs "have submitted no cognizable proof of detrimental 

reliance." Because Unisys did not proffer this issue in the 

district court, we decline to address it. See Selected Risks 

Ins. Co. v. Bruno, 718 F.2d 67, 69 (3d Cir. 1983) (federal 

appellate court generally does not consider issues not raised in 

the district court). 
55 

Contract Funds in view of the purchases of the Executive Life 

GICs and the financial condition Executive Life presented in 

1990. Moreover, in this regard, we do not, as Unisys urges, 

distinguish between "public" and "non-public" information nor do 

we limit Unisys' duty to disclose to the latter. We do not see 

any reason under the circumstances for doing so, and at any rate, 

Unisys included public data, (credit ratings, for example), in 

its communications to plan participants. 

 Accordingly, we conclude that the plaintiffs raise 

genuine issues of material facts on their section 1104(a) failure 

to disclose claim. 

IV. 

 Lastly, we address Unisys' assertion that section 

1104(c) of the Employee Retirement Income Security Act of 1974, 

("ERISA"), 29 U.S.C. § 1001 et seq. (1985 & Supp. 1995), applies 

in this case. 

 Generally speaking, ERISA holds fiduciaries who commit 

breaches of duty liable for resulting losses. 29 U.S.C. §1109.0 

 

0 Section 1109 of the Employee Retirement Income Security 

Act of 1974, ("ERISA"), 29 U.S.C. § 1001 et seq. (1985 & Supp. 

1995), states in pertinent part: 

§ 1109. Liability for breach of fiduciary duty

 (a) Any person who is a fiduciary with 

respect to a plan who breaches any of the 

responsibilities, obligations, or duties 

imposed upon fiduciaries by this subchapter 

shall be personally liable to make good to 

such plan any losses to the plan resulting 

from each such breach. . . . 
56 

Under section 1104(c) of the Act, however, a fiduciary is not 

liable for any loss or breach which results from a participant's 

exercise of control over the assets in his or her individual 

account. Moreover, a participant who exercises such control is 

not deemed a fiduciary. Section 1104(c) states: 

 § 1104. Fiduciary Breaches

(c) Control over assets by participant or beneficiary

 In the case of a pension plan which 

provides for individual accounts and permits 

a participant or beneficiary to exercise 

control over the assets in his account, if a 

participant or beneficiary exercises control 

over the assets in his account (as determined 

under regulations of the Secretary0)-- 

 

29 U.S.C. § 1109(a). 

0 Recognizing that "there may be difficulties in determining 

whether the participant in fact exercises control over his 

account[,]" Congress directed that "whether participants and 

beneficiaries exercise independent control is to be determined 

pursuant to regulations prescribed by the Secretary of Labor." 

H.R. Conf. Rep. No. 1280, 93d Cong., 2nd Sess. (1974), reprinted 

in 1974 U.S. Code Cong. & Admin. News 5038, 5086. 

 The Secretary of Labor issued a final regulation for 29 

U.S.C. §1104(c) in October, 1992. 29 C.F.R. § 2550.404c-1. The 

regulation sets forth in considerable detail the "kinds of plans 

that are 'ERISA section [1104(c)] plans,' the circumstances in 

which a participant or beneficiary is considered to have 

exercised independent control over the assets in his account as 

contemplated by section [1104(c)], and the consequences of a 

participant's or beneficiary's exercise of control." Id.

§2550.404c-1(a). 

 Briefly, under the regulation, a plan must inform 

participants or beneficiaries that the plan is intended to 

constitute a plan described in section 1104(c) of ERISA and Title 

29 of the Code of Federal Regulations and that "the fiduciaries 

of the plan may be relieved of liability for any losses which are 

the direct and necessary result of investment instructions given 

by such participant or beneficiary." Id. § 2550.404c1(b)(2)(1)(i). The plan must also allow participants the 

opportunity to choose from a broad range of investment 
57 

 (1) such participant or 

beneficiary shall not be deemed to 

be a fiduciary by reason of such 

exercise, and 

 (2) no person who is 

otherwise a fiduciary shall be 

liable under this part for any 

loss, or by reason of any breach, 

which results from such 

participant's or beneficiary's 

exercise of control. 

29 U.S.C. § 1104(c) (footnote added). 

 Finding that the Plans gave the plaintiffs the 

authority to determine into which Funds their respective 

contributions were directed and that Unisys advised them of the 

"non-guaranteed" nature of the investments in the Fixed Income 

and Insurance Contract Funds, the district court held that the 

plaintiffs had "control" over their assets under section 1104(c) 

and that, therefore, Unisys was freed from section 1104(a)'s 

disclosure duties. Because the court concluded that Unisys was 

entitled to summary judgment on the plaintiffs' breach of 

fiduciary duty claims, it did not reach Unisys' assertion that 

 

alternatives, give investment instruction with appropriate 

frequency, diversify investments, and obtain sufficient 

information to make informed investment decisions. Id.

§2250.404c-1(a)-(c). 

 Generally, the regulation "is effective with respect to 

transactions occurring on or after the first day of the second 

plan year beginning on or after October 13, 1992." Id.

§2250.404c-1(g)(1). Transactions occurring before this date are 

governed by section 1104(c) of the Act without regard to the 

regulation. Id. § 2250.404c-1(g)(3). 

 As the regulation was not in effect when the 

transactions at issue occurred, it does not apply or guide our 

analysis in this case. 
58 

section 1104(c) applies to relieve it of liability for the 

plaintiffs' alleged losses. We have already determined that the 

court erred in granting summary judgment to Unisys on the 

plaintiffs' breach of fiduciary duty claims and in using section 

1104(c) to excuse Unisys from the duty to inform that ERISA 

imposes upon fiduciaries. We must now determine whether the 

district court's decision to grant Unisys summary judgment should 

nonetheless be affirmed because Unisys urges that section 1104(c) 

provides it with a complete defense to the plaintiffs' claims. 

 Our task in interpreting section 1104(c) and applying 

it here is, of course, to effectuate Congress' intent. Negonsott 

v. Samuels, ___U.S.___, 113 S. Ct. 1119, 1122-23 (1993). As with 

any inquiry of statutory construction, we start with the text of 

the statute, Pension Benefit Guar. Corp. v. White Consolidated 

Indus., Inc., 998 F. 2d 1192, 1198 (3d Cir. 1993), cert. denied, 

___ U.S. ___, 114 S. Ct. 687 (1994); "where [Congress'] will has 

been expressed in reasonably plain terms, that language must 

ordinarily be regarded as conclusive." Griffin v. Oceanic 

Contractors, Inc., 458 U.S. 564, 570 (1982). If the statutory 

language is unclear, we then look to the Act's legislative 

history. Blum v. Stenson, 465 U.S. 886, 896 (1984). 

 It is Unisys' position that even if it failed to 

satisfy ERISA's duties of prudence and diversification in the 

first instance by purchasing the Executive Life GICs for the 

Plans, the losses allegedly sustained in this case resulted from 

the "control" each plaintiff as a plan participant exercised --

the decision to invest in Executive Life by making an informed 
59 

choice to contribute to and maintain assets in the Fixed Income 

and Insurance Contract Funds. The plaintiffs' control, according 

to Unisys, emanated from two sources: the information Unisys 

distributed to plan participants regarding the personal 

responsibility they assumed for investment decisions, the nature 

of investments in the Fixed Income and Insurance Contract Funds 

in general and the Funds' holdings in Executive Life in 

particular,0 as well as the Plans' contribution and transfer 

terms, which allowed each participant the freedom to allocate his 

or her assets among the various investment funds as he or she saw 

fit. 

 Given Unisys' position, the first question we must 

answer regarding section 1104(c) is whether the statute allows a 

fiduciary, who is shown to have committed a breach of duty in 

making an investment decision, to argue that despite the breach, 

it may not be held liable because the alleged loss resulted from 

a participant's exercise of control. In light of section 

1104(c)'s plain language, we believe that it does. There is 

 

0 The information which Unisys contends is a source of 

the plaintiffs' control includes representations that the 

plaintiffs allege were materially misleading in violation of 

section 1104(a)'s fiduciary duty to disclose. Obviously, given 

the role these representations play in Unisys' section 1104(c) 

defense, Unisys cannot claim that section 1104(c) would relieve 

it from liability in the event that the representations are found 

to constitute breaches of ERISA's disclosure duties. It is also 

obvious that in the event these representations are found to have 

materially misled the plaintiffs, Unisys' theory of control under 

section 1104(c) would fail. Indeed, the parties do not dispute 

that accurate and complete information regarding the investments 

Unisys made for Fixed Income and Insurance Contract Funds is 

essential to the section 1104(c) control Unisys contends the 

plaintiffs exercised in this case. 
60 

nothing in section 1104(c) which suggests that a breach on the 

part of a fiduciary bars it from asserting section 1104(c)'s 

application. On the contrary, the statute's unqualified 

instruction that a fiduciary is excused from liability for "any 

loss" which "results from [a] participant's or [a] beneficiary's 

exercise of control"0 clearly indicates that a fiduciary may call 

upon section 1104(c)'s protection where a causal nexus between a 

participant's or a beneficiary's exercise of control and the 

claimed loss is demonstrated. This requisite causal connection 

is, in our view, established with proof that a participant's or a 

beneficiary's control was a cause-in-fact, as well as a 

substantial contributing factor in bringing about the loss 

incurred. See Willett v. Blue Cross and Blue Shield of Alabama, 

953 F.2d 1335, 1343 (11th Cir. 1992) ("Section [1109] of ERISA 

establishes that an action exists to recover losses that 

`resulted' from the breach of fiduciary duty; thus the statute 

does require that the breach of the fiduciary duty be the 

proximate cause of the losses claimed . . . ."); Brandt v. 

Grounds, 687 F.2d 895, 898 (7th Cir. 1982) (Under 29 U.S.C. 

§1109, where "a fiduciary . . . who . . . breaches . . . shall be 

personally liable to make good . . . any losses resulting from 

each such breach", a causal connection is required between the 

breach of the fiduciary duty and the losses alleged.). 

 

0 In this regard, section 1104(c) operates in alternative 

circumstances, excusing a fiduciary from liability for "any loss" 

or "by reason of any breach" which "results from [a] 

participant's or [a] beneficiary's exercise of control." 29 

U.S.C. § 1104(c). 
61 

 Section 1104(c)'s text, however, neither defines nor 

clarifies its central element -- the "control" a pension plan may 

permit a participant or a beneficiary to exercise. 29 U.S.C. 

§1104(c). Accordingly, we look to ERISA's legislative history 

for assistance. From a House Conference Report, we learn that 

section 1104(c) established a "special rule" for plans which 

allow a participant or a beneficiary "independent control" over 

individual account assets: 

Certain individual account plans. [A] 

special rule is provided for individual 

account plans where the participant is 

permitted to, and in fact does, exercise 

independent control over the assets in his 

individual account. In this case, the 

individual is not to be regarded as a 

fiduciary and other persons who are 

fiduciaries with respect to the plan are not 

to be liable for any loss that results from 

the exercise and control by the participant 

or beneficiary. 

H.R. Conf. Rep. No. 1280, reprinted in 1974 U.S. Code Cong. & 

Admin. News at 5085-86. 

 From that same Report, we further learn that Congress 

conceptualized control in terms of authority on the part of a 

participant or a beneficiary to issue investment instructions to 

a fiduciary: 

Therefore, if the participant instructs the 

plan trustee to invest the full balance of 

his account in, e.g., a single stock, the 

trustee is not be liable for any loss because 

of a failure to diversify or because the 

investment does not meet the prudent man 

standards. However, the investment must not 

contradict the terms of the plan, and if the 

plan on its face prohibits such investments, 
62 

the trustee could not follow the instructions 

and avoid liability. 

Id. at 5086. 

 Finally, the Report tells us that a section 1104(c) 

plan must offer a "broad range of investments". Id.0 

Before we turn to section 1104(c)'s application to the evidence 

in this case, we have several observations to make. First, our 

analysis of the statute and Congress' statements of legislative 

intent lead us to believe that while all plans which qualify 

under section 1104(c) have certain elements in common, each 

section 1104(c) plan is unique, depending on the control a plan 

permits participants and beneficiaries to exercise by way of the 

investment instructions they may give. Second, because section 

1104(c) speaks in terms of a plan which permits control to a 

participant or a beneficiary, a participant's or a beneficiary's 

 

0 In accordance with Congress' direction that we consult 

the common law of trusts for additional insight into ERISA's 

provisions, we note that a trustee may under certain 

circumstances be discharged from liability for losses that arise 

out of a particular transaction which represents a breach of 

trust. According to sections 216, 217 and 218 of the Restatement 

(Second) of Trusts respectively, where a beneficiary consents to, 

subsequently affirms or releases a trustee's breach of trust, he 

cannot thereafter hold the trustee liable for losses, unless at 

the time of consent, affirmance or release, the beneficiary was 

incompetent, not informed by the trustee of his rights and the 

material facts, subjected to the trustee's improper influence or 

made party by an interested trustee to an unfair or unreasonable 

bargain. Restatement (Second) of Trusts, §§ 216, 217, 218 

(1959). In addition, under section 219 of the Restatement, a 

beneficiary may be barred from holding a trustee liable for 

losses by laches. Id. § 219. 

 

 We have not found, however, a common law trust 

principle that is analogous to the scheme that Congress 

established in 29 U.S.C. § 1104(c) as we understand it. 
63 

control under section 1104(c) stems from a plan's specific 

provisions, not from elements which lie outside the plan's 

structure and which may arguably amount to control in connection 

with a single transaction. Finally, section 1104(c) is akin to 

an exemption from or a defense to ERISA's general rule, relieving 

fiduciaries in the appropriate circumstances of the liability to 

which they would otherwise be exposed under 29 U.S.C. § 1109. 

Accordingly, a fiduciary which seeks section 1104(c)'s protection 

bears the burden of showing its application. See Lowen v. Tower 

Asset Management, Inc., 829 F. 2d 1209, 1215 (2d Cir. 1987) 

(holding that the defendant is in the best position to prove and 

should bear the burden of establishing its entitlement to an 

exemption under 29 U.S.C. §1108 from 29 U.S.C. §1106(b), ERISA's 

prohibited transactions provision); Donovan v. Cunningham, 716 F. 

2d 1455, 1467-68 (5th Cir. 1983), cert. denied, 467 U.S. 1251 

(1984) (ESOP fiduciaries charged with violations of section 

1104(a)'s duty of prudence bear the burden of proving the 

"statutory defense" of adequate consideration under 29 U.S.C. 

§1108(e)). 

 Having carefully reviewed the record with this 

background in mind, we conclude that Unisys is not entitled to 

summary judgment on its section 1104(c) defense. The record is 

inadequately developed as to critical facts and demonstrates the 

existence of disputed material facts as to whether the Plans fall 

within the statute's coverage. 

 Starting with Congress' mandate that a section 1104(c) 

plan provide "a broad range of investments", we look to see 
64 

whether the uncontroverted evidence Unisys submitted establishes 

that the Plans gave participants a wide array of investments with 

materially different risk and return characteristics. Given 

Unisys' theory of control, we also look to see whether the 

evidence establishes that a participant could remove his or her 

assets from, in this instance, the Fixed Income or Insurance 

Contract Funds and place them in a comparable investment vehicle. 

In our view, if the Plans did not offer an acceptable alternative 

to GIC investments, a participant did not have the freedom and, 

in turn, the control to decide how his or her assets were 

ultimately invested. In this regard, we find the evidence 

lacking. The record includes documents which give a general 

description of the six funds the Plans offered; it does not, 

however, include evidence sufficient to measure the breadth of 

actual plan investments or assess all of the investment 

alternatives available to participants. 

 As stated, Unisys' contention that the plaintiffs were 

permitted control under section 1104(c) and indeed exercised it 

is premised, in part, on the information Unisys allegedly 

disseminated to participants regarding "his or her investment 

options[,] [his or her] obligation to manage his or her own 

investments[,] the risks associated with th[e] election to invest 

in GICs[,] and developments surrounding Executive Life. . . ." 

(See Defendants' Memorandum of Law in Support of their Motion for 

Summary Judgment and to Strike Jury Demand, pp.15-17). We agree 

that information, both general and relating specifically to 

Executive Life, is an essential element of Unisys' section 
65 

1104(c) theory that the plaintiffs themselves ultimately 

controlled whether their respective assets were invested in 

Executive Life GICs, even though Unisys chose the investment in 

the first place. For Unisys to prevail under section 1104(c), 

however, it must establish that the Plans provided information 

sufficient for the average participant to understand and assess: 

the control the Plans permitted a participant to exercise and the 

financial consequences he or she assumed by exercising that 

control; the rights that ERISA provided to participants and the 

obligations that the Act imposed upon fiduciaries; the Plans' 

terms and operating procedures; the alternative funds the Plans 

offered; the investments in which assets in each fund were 

placed; the financial condition and performance of the 

investments; and developments which materially affected the 

financial status of the investments. 

 Based on our careful review of the record, we find that 

Unisys has not satisfied its burden on summary judgment to show 

that this necessary information was provided to the Plans' 

participants. Significantly, the written documents which 

establish and maintain the Plans are conspicuously missing from 

the record. Thus, we cannot determine what information the Plans 

made available to participants as a matter of course. If Unisys' 

dissemination of the information it relies upon to assert section 

1104(c)'s application in this case was not performed pursuant to 

a plan term but was merely situational, an isolated response to a 

crisis in one investment, then the control that Unisys contends 

the plaintiffs had was not permitted by the Plans as section 
66 

1104(c) requires and the statute's relief would be unavailable. 

As for the disclosures that Unisys included in the record, 

whether they communicated to the average participant the 

information we have decided is critical to Unisys' section 

1104(c) defense are questions of fact properly left to the 

factfinder to decide at trial. 

 Moving to the second component of Unisys' position 

regarding the plaintiffs' control -- the Plans' contribution and 

transfer terms -- we agree with Unisys that the evidence is 

uncontroverted that for all intents and purposes, a participant's 

ability to make initial contributions to the Plans' various 

investment funds was unfettered. The transfer restrictions that 

the Plans imposed upon participants, however, are problematic. 

The record reveals that the Plans restricted transfers which 

involved all of the GIC Funds and the Short-Term Investment Fund 

in order to obtain higher interest rates from GIC issuers.0 While 

we have no quarrel with the reason for the transfer restrictions 

or with the notion that the frequency with which a participant 

issues investment instructions may be restricted without 

necessarily eliminating the control that section 1104(c) 

contemplates, we believe that a reasonable factfinder could 

conclude that the duration and pervasiveness of the restrictions 

imposed upon participants by the Plans so significantly limited 

 

0 Charles Service, a member of Unisys Corporation's Capital 

Management Trust Investment Department explained: "These 

restrictions allow the insurance companies to forecast their cash 

flows with greater certainty, thereby reducing their risk. With 

their risk reduced, the insurance companies which bid for our 

GICs can offer significantly higher yields." 
67 

their ability to decide in which Funds their respective assets 

were allocated, that the restrictions are antithetical to the 

concept of "independent control" that Congress enacted in section 

1104(c). Moreover, assuming that control existed at the Plans' 

inception, the factfinder could conclude that when Unisys agreed 

on October 17, 1990, to give Executive Life the right under 

certain circumstances "to not honor employee requests for 

withdrawal" in exchange for Executive Life's consent to a 

reduction in the waiting period for asset transfers between "noncompeting" funds and the GIC Funds, control within the meaning of 

section 1104(c) was no longer available to the participants under 

the Plans from that point forward. 

 Thus, we conclude that Unisys is not entitled to 

summary judgment on its section 1104(c) defense to the 

plaintiffs' breach of fiduciary duty claims. 

 Finally, we observe that in the event the plaintiffs 

prove that Unisys breached section 1104(a)'s duty of prudence 

and/or duty of diversification and Unisys proves that section 

1104(c) applies as a defense, the losses for which Unisys would 

not be liable are those which, as to each plaintiff, occurred 

after he or she, free under the Plans' transfer terms to place 

the assets in any of the Plans' investment vehicles, exercised 

control by making the informed decision to contribute to and/or 

maintain assets in the Fixed Income Fund or the Insurance 

Contract Fund. 

V. 
68 

 For the foregoing reasons, we will vacate the district 

court's order of January 25, 1995 granting summary judgment to 

the defendants on Count I of the second amended consolidated 

class action complaint and remand for further proceedings on the 

plaintiffs' breach of fiduciary claims under section 1104(a) of 

the Employee Retirement Income Security Act of 1974, 29 U.S.C. 

§1001 et seq. (1985 & Supp. 1995).