Opinion ID: 17522
Heading Depth: 4
Heading Rank: 2

Heading: Failure To Invest Prudently

Text: Matassarin next argues that the defendants’ allowing her segregated account to accrue only minimal interest violates the prudent-person investment standard’s diversification requirement under ERISA § 404. ERISA § 404 requires a plan fiduciary to “discharge his duty with respect to a Plan solely in the interest of the participants and beneficiaries and . . . 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)(C); see Metzler v. Graham, 112 F.3d 207, 209 (5th Cir. 1997) (addressing the diversification requirement). The defendants’ failure to diversify Matassarin’s account did not in any way expose it to the risk of large losses and therefore did not breach an explicit § 404 diversification duty. We are mindful, however, that implicit within § 404(a) is the desirability of increasing a plan’s value--preferably ensuring more than passbook interest--through sound investment.20 Cunningham, 716 F.2d 1455, 1465 (5th Cir. 1983). The more likely challenge involving this exemption would question whether an ESOP paid too much for employer securities. We know of none in which a claimant alleged that an ESOP cheated its former participants by paying too little for employer securities. Whereas Matassarin would not be entitled to relief even if § 406(b) does apply, we need not decide the issue here. 20. Section 404(a)(1)(B), for example, requires an ERISA fiduciary to discharge his duties as would “a prudent man acting in like capacity and familiar with such matters,” which would contemplate increasing the plan’s value. 29 U.S.C. § 1104(a)(1)(B). -33- Nonetheless, Matassarin’s QDRO, the terms of which the defendants were bound to apply, requires just passbook interest, rendering it clearly prudent under §404(a)(1)(C) for Great Empire not to diversify in this case. We recognize the aberrancy and difficulty of Matassarin’s situation. In enacting ERISA, Congress sought to ensure that workers who have been promised certain retirement benefits actually receive those benefits. See Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S. Ct. 2709, 2713 (1984). Although the primary purpose of an ESOP differs from that of a pension plan, ESOPs remain subject to ERISA’s general protective restrictions and requirements. See Cunningham, 716 F.2d at 1463-68. From Matassarin’s point of view, the QDRO structure has hurt her retirement prospects. While married to Jenkins, Matassarin no doubt looked forward to enjoying with him ERISA sound-investment requirements do not generally apply to an ESOP, which is “designed to invest primarily in securities issued by its sponsoring company.” Cunningham, 716 F.2d at 1458; see 29 U.S.C. § 1104(a)(2) (exempting ESOPs from diversification requirements); 29 U.S.C. § 1107(b), (d) (same); see also Moench v. Robertson, 62 F.3d 553, 568 (3d Cir. 1995) (“ESOPs, unlike pension plans, are not intended to guarantee retirement benefits, and indeed, by its very nature, ‘an ESOP places employee retirement assets at much greater risk than does the typical diversified ERISA plan.’” (quoting Martin v. Feilen, 965 F.2d 660, 664 (8th Cir. 1992)). If Matassarin were an ordinary ESOP participant, the nature of the Plan would probably exempt her account from standard ERISA diversification requirements. But Matassarin is of course not an ordinary ESOP participant, insofar as her account, per the terms of her QDRO, no longer depends upon employer securities. As such, any ESOP exception seems inapplicable. -34- the retirement benefits of his Great Empire ESOP shares. Presumably, she and Jenkins expected that the shares’ value would increase in the years before Jenkins became eligible for retirement. Because the QDRO requires valuation of Matassarin’s shares as of the date of her divorce, she lost the prospect of significant increase in the shares’ value to fund her retirement. In short, Matassarin’s QDRO removed her savings from the ambit of a more traditional ERISA-qualified ESOP or pension plan, which would focus on increasing savings. This case raises the question, then, of how a plan administrator is to treat a beneficiary whose QDRO appears out of line from the greater goals of ERISA. We believe that both ERISA and case law require a plan administrator to follow the dictates of the QDRO. Once a plan administrator determines that a domestic relations order meets the criteria set forth in 29 U.S.C. § 1056(d)(3) and thus is “qualified,” he is required to act in accordance with the QDRO. See, e.g., In re Gendreau, 122 F.3d 815, 817-18 (9th Cir. 1997); Metropolitan Life Insurance Co. v. Wheaton, 42 F.3d 1080, 1085 (7th Cir. 1994). “ERISA does not require, or even permit, a pension fund to look beneath the surface of the order. Compliance with a QDRO is obligatory. . . . This directive would be empty if pension plans could add to the statutory list of requirements for ‘qualified’ status.” Blue v. UAL Corp., 160 F.3d 383, 385 (7th Cir. 1998). Through its QDRO -35- amendments, federal ERISA law defers to domestic relations orders approved in state court proceedings. We do not find the deference to be affected by whether the QDRO may slow the growth of the subject retirement savings. Matassarin makes several arguments as to why her QDRO should not be enforced. She contends, for example, that Jenkins insisted on the QDRO format as necessary to recognition under the Great Empire ESOP, that Menke & Associates unfairly drafted the order, and that she did not realize the implications of the order for her retirement benefits. A United States district court is not the proper forum in which to raise such arguments. We acknowledge that ERISA supersedes state law insofar as the state law “relate[s] to” an ERISA-qualified employee benefit plan. 29 U.S.C. § 1144(a). Federal courts may be called upon to determine the proper beneficiary under a QDRO or to review a plan administrator’s interpretation of a QDRO, as we have done here. But although we read § 1144(a)’s “relates to” language broadly, see Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S. Ct. 2890, 2900 (1983), we cannot say that a federal court’s role extends as far as examining the circumstances under which a potential beneficiary entered and a state court approved a QDRO. Such a claim affects domestic relations, which is not an area of exclusive federal concern. See Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 245 (5th Cir. 1990) -36- (stating that cases in which ERISA preempts state-law claims, the claims address areas of exclusive federal concern). If Matassarin believes that she mistakenly entered the QDRO or was fraudulently induced to do so, then the Kansas state court that approved that order is the entity to hear her complaints. Cf. Perkins v. Time Insurance Co., 898 F.2d 470, 473 (5th Cir. 1990) (holding that a claim that an insurance agent fraudulently induced an insured to surrender his current insurance and participate in an ERISA plan “related to” the ERISA plan only indirectly, so that ERISA would not preempt the state claim). The REA amendments preserve ERISA anti-alienation provisions while leaving domestic relations in the states’ hands. We will not disturb that structure.