Source: https://m.openjurist.org/994/f2d/266/23881b-schloegel-hancock-bank-profit-sharing-plan-v-boswell
Timestamp: 2020-04-01 12:30:01
Document Index: 594204813

Matched Legal Cases: ['§ 1002', '§ 1', '§ 1109', '§ 1002', '§ 2509', '§ 1002', '§ 1002', '§ 2510', '§ 2510', '§ 2510', '§ 1002', '§ 1002', '§ 2510', '§ 1002', '§ 1002']

994 F2d 266 23881b Schloegel Hancock Bank Profit Sharing Plan v. Boswell | OpenJurist
994 F. 2d 266 - 23881b Schloegel Hancock Bank Profit Sharing Plan v. Boswell
994 F2d 266 23881b Schloegel Hancock Bank Profit Sharing Plan v. Boswell
994 F.2d 266
16 Employee Benefits Cas. 2795, Pens. Plan Guide P 23881B
George A. SCHLOEGEL and the HANCOCK BANK PROFIT SHARING
PLAN, Plaintiffs-Appellees,
Laurie BOSWELL, Defendant-Third Party Plaintiff-Appellant,
HANCOCK BANK, et al., Third Party Defendants-Appellees.
No. 92-7592.
The Profit Sharing Plan and Schloegel (collectively the Plaintiffs) sued Boswell for breach of fiduciary duties imposed by ERISA. Although the Profit Sharing Plan has not lost its tax-deferred status, the Plaintiffs claim that they suffered a $63,300 loss due to the imprudent investment in life insurance. Following a bench trial, the district court entered judgment for the Plaintiffs. 800 F.Supp. 468. We reverse on the ground that Boswell was not an ERISA fiduciary of the Profit Sharing Plan.
Hancock Bank of Gulfport, Mississippi (the Bank) maintains an ERISA defined benefit pension plan (the Pension Plan) and the Profit Sharing Plan for its employees. See 29 U.S.C. § 1002(2)(A).1 Although this lawsuit concerns only the investments of the Profit Sharing Plan, a discussion of the Pension Plan is necessary to explain Boswell's relationship with the Bank.
D. Violation of Federal Tax Regulations
Federal tax regulations permit a qualified profit sharing plan to provide death benefits to plan participants as long as the death benefits are "incidental" to the primary purpose of providing retirement benefits (the incidental-death-benefit rule). Treas.Reg. § 1.401-1(b)(1)(ii). A profit sharing plan can satisfy the incidental-death-benefit rule if less than 50 percent of the employer's contributions (and forfeitures) allocated to the participant's profit-sharing account are used to purchase ordinary life insurance policies on the participant's life (the 50-percent test). See Rev.Rul. 74-307, 1974-2 C.B. 126; Rev.Rul. 54-51, 1954-1 C.B. 147, as modified by Rev.Rul. 57-213, 1957-1 C.B. 157.
In November 1990, the district court denied Boswell's 12(b)(6) motion to dismiss on statute of limitations grounds. 751 F.Supp. 642. In July 1991, the district court dismissed Boswell's third-party action and counterclaim, holding that contribution and indemnification are not available under ERISA. 766 F.Supp. 563. The case proceeded to a bench trial. Following the trial, the district court entered judgment in favor of the Plaintiffs, awarding them $63,300.00 plus interest and costs. 800 F.Supp. 468.
ERISA imposes personal liability on "[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon [ERISA] fiduciaries." 29 U.S.C. § 1109(a). A person is a "fiduciary" with respect to a plan
In holding that Boswell was a fiduciary, the district court noted that Boswell had become "a person upon whom the Plan Trustee, Administrator and beneficiary relied ... in allocating Plan assets." 800 F.Supp. at 474. The court concluded that "Boswell exercised sufficient discretionary authority or control, vis-a-vis the subject policies purchased and maintained by the Plan for Schloegel's account, to justify his being found to be a fiduciary." Id. Although not completely clear, it appears the district court relied only on subsection (i) of 29 U.S.C. § 1002(21)(A) in determining that Boswell was a fiduciary.
A. Subsection (i)--Authority or Control
H.R.Conf.Rep. No. 1280, 93d Cong., 2d Sess. 323, reprinted in 1974 U.S.Code Cong. & Admin.News 5038, 5103. The Seventh Circuit, in Pappas v. Buck Consultants, Inc., 923 F.2d 531 (7th Cir.1991), recognized that this legislative history "seems to ... contemplate[ ] a ... fact-intensive inquiry that looks to whether the professional transcended her 'ordinary functions.' " Id. at 537; see also Mertens v. Hewitt Assoc., --- U.S. ----, ----, 113 S.Ct. 2063, 2071, 124 L.Ed.2d 161 (1993) (noting that "[p]rofessional service providers such as actuaries become liable for damages when they cross the line from advisor to fiduciary"); 29 C.F.R. § 2509.75-5.
Mere influence over the trustee's investment decisions, however, is not effective control over plan assets. See American Federation of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc'y, 841 F.2d 658, 664 (5th Cir.1988) ("Simply urging the purchase of its products does not make an insurance company an ERISA fiduciary with respect to those products."); Pappas, 923 F.2d at 535 ("discretionary authority" and "discretionary control" refer to actual decision-making power, not the influence a professional may have over the decisions made by the plan trustees). To satisfy the "authority or control" element under subsection (i), the Plaintiffs must demonstrate that Boswell caused trustee Eastland to relinquish his independent discretion in investing the plan's funds and follow the course prescribed by Boswell. See Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enter., Inc., 793 F.2d 1456, 1460 (5th Cir.1986), cert. denied, 479 U.S. 1034, 107 S.Ct. 884, 93 L.Ed.2d 837 (1987).
We rely on the following undisputed facts to conclude that Boswell did not have the degree of control necessary to satisfy the subsection (i) definition of fiduciary. First, trustee Eastland testified that he has the duty to invest the plan's funds and that he made the ultimate decision to purchase the life insurance policies on Schloegel's life. Second, Eastland wrote to consultant Robert Dowd in 1980 to solicit his advice on whether to use profit-sharing funds to purchase life insurance. This indicates that Boswell was not usurping Eastland's investment power. Third, Boswell presented his life insurance proposal to six or seven members of the Bank's management committee, but Boswell only persuaded two of the members to accept his recommendation. These facts convince us that, as a matter of law, Boswell did not have the authority or control contemplated under subsection (i). Compare Donovan v. Mercer, 747 F.2d 304, 309 (5th Cir.1984) ("[A] person who is repeatedly referred to as a trustee of an employee benefit plan, and who signs documents and takes actions regarding the Plan in an official capacity, is, as a matter of law, a fiduciary....") with American Federation of Unions, 841 F.2d at 664 (merely proposing investments does not make an insurance company an ERISA fiduciary). Boswell made an investment proposal, not an investment decision.
B. Subsection (ii)--Investment Advice
The Department of Labor has adopted regulations explaining when a person is deemed to be providing "investment advice" under subsection (ii) of 29 U.S.C. § 1002(21)(A):
A person shall be deemed to be rendering "investment advice" to an employee benefit plan, within the meaning of [29 U.S.C. § 1002(21)(A)(ii) ], only if:
29 C.F.R. § 2510.3-21(c)(1) (emphasis added) ("DOL Regulation"); see also American Federation of Unions, 841 F.2d at 664 & n. 5 (applying the DOL Regulation); Farm King Supply, Inc. Integrated Profit Sharing Plan & Trust v. Edward D. Jones & Co., 884 F.2d 288, 291-94 (7th Cir.1989) (same). The district court below did not discuss the DOL Regulation in ruling on Boswell's fiduciary status. See 800 F.Supp. at 473-74.
Boswell does not dispute that the first requirement of the DOL Regulation is met; he made recommendations as to the advisability of purchasing life insurance. See 29 C.F.R. § 2510.3-21(c)(1)(i).
The parties dispute whether the second requirement of the DOL Regulation is met. There are two ways to satisfy this second requirement. First, the second requirement is met if the person (Boswell) had "discretionary authority or control" with respect to purchasing property for the plan. See id. § 2510.3-21(c)(1)(ii)(A) ("Subpart (ii)(A)"). Subpart (ii)(A) of the DOL Regulation appears to overlap with subsection (i) of 29 U.S.C. § 1002(21)(A), which we discussed above. If a person has discretionary authority or control with respect to purchasing or selling securities or other property for the plan, that person would satisfy subsection (i) of 29 U.S.C. § 1002(21)(A) as well as satisfy Subpart (ii)(A) of the DOL Regulation. See Olson v. E.F. Hutton & Co., 957 F.2d 622, 626 n. 4 (8th Cir.1992) (recognizing that Subpart (ii)(A) of the DOL Regulation overlaps with subsection (i) of the statutory definition).2 For the reasons discussed above, we hold that Boswell did not have "discretionary authority or control" with respect to the Profit Sharing Plan's purchase of the insurance policies on Schloegel's life.
The second way of satisfying the second requirement of the DOL Regulation is by rendering investment-type advice on a regular basis to the plan pursuant to a mutual agreement, arrangement, or understanding between the advisor and the plan. That mutual agreement, arrangement, or understanding must indicate that such advice will serve as the primary basis for the plan's investment decisions and that the advisor will render individualized investment advice based on the plan's particular investment needs. See 29 C.F.R. § 2510.3-21(c)(1)(ii)(B) ("Subpart (ii)(B)").
Boswell's relationship with the Profit Sharing Plan fails to satisfy Subpart (ii)(B). Despite Eastland's, Peterman's, and Schloegel's testimony that Boswell advised the Profit Sharing Plan, the record fails to show that Boswell rendered investment-type advice to the Profit Sharing Plan on a regular basis. Aside from the advice given in 1977 and 1980 regarding the life insurance for Schloegel and other executives, Eastland could only think of one other time when Boswell gave him investment advice. In searching through the record, we found only a few instances of Boswell providing investment-type advice to the Profit Sharing Plan. Furthermore, nothing in the record shows that the Profit Sharing Plan and Boswell had a mutual arrangement or understanding that Boswell's advice would serve as the primary basis for the plan's investment decisions. We noted earlier that only two members of the Bank's management committee followed Boswell's sales pitch. The fact that Eastland solicited Dowd's advice on the advisability of purchasing life insurance further indicates that Eastland did not exclusively rely on Boswell's advice. Eastland testified at trial that he did not "seek [Boswell] out and ask advice" but that, if Boswell approached him, he "was willing to listen." This falls far short of the type of relationship described in the DOL Regulation.
Based on the DOL Regulation and the evidence at trial, we conclude, as a matter of law, that Boswell did not render "investment advice" for purposes of subsection (ii) of 29 U.S.C. § 1002(21)(A).
We note that Subpart (ii)(A) of the DOL Regulation is narrower in scope than subsection (i) of 29 U.S.C. § 1002(21)(A). Subpart (ii)(A) of the DOL Regulation covers only discretionary authority or control with respect to purchasing or selling the plan's property