Opinion ID: 778983
Heading Depth: 4
Heading Rank: 2

Heading: Cost of Borrowing

Text: 74 The district court also held that Hancock's decision to allocate costs of borrowing to the Plan breached its fiduciary duties under ERISA. The district court appears to have applied the wrong standard in analyzing this issue. The court found that [t]he group pension line ... was always profitable and the cash flow associated with the [Plan] was always positive. Judgment Opinion, 122 F.Supp.2d at 455. The court therefore concluded that the cost of borrowing allocation was improper because the loans were necessitated not by group pension but by other lines of business within Hancock. Id. However, business borrowing is not necessarily connected with losses. Presumably many businesses, even highly profitable ones, borrow funds as a capitalization device. Hancock alleges that it borrowed money in order to make the investments in which the Plan shared; such investment expenses would be properly allocated to the Plan. Thus, the fact that the Plan was always profitable does not inevitably lead to the conclusion that any allocation of borrowing costs to the Plan constituted a breach of fiduciary duty. We therefore vacate the district court's ruling on this issue and remand for consideration of whether and to what extent the Plan earned income from investments that Hancock funded by borrowing.