In Renfro v. Unisys Corp., the US Court of Appeals for the Third Circuit affirmed the district court's dismissal of a putative class action claiming the defendants, Unisys Corp. and Fidelity Management Trust Co., breached their fiduciary duties under ERISA by inadequately selecting a mix and range of investment options to include in Unisys Corp.'s 401(k) plan. The key issues in the case were whether:

The plaintiffs sued Unisys and Fidelity in district court, alleging breach of fiduciary duty under Sections 404 and 502(a)(2) of ERISA and for equitable relief under Section 502(a)(3) of ERISA. The plaintiffs alleged that the defendants breached their duties of loyalty and prudence under ERISA by including Fidelity retail mutual funds with excessive fees in the Unisys Corporation Savings Plan, a defined contribution plan maintained by Unisys under Section 401(k) of the Internal Revenue Code. They also argued that Fidelity functioned as a fiduciary to the plan by virtue of its role as directed trustee.

In 1993, Unisys and Fidelity entered into a trust agreement under which:

The agreement did not prevent Unisys from:

At the time the complaint was filed, Fidelity provided 71 of the 73 investment options offered under the plan, including 67 retail mutual funds that were available to individual and small investors as well as large ERISA funds. Investment management fees associated with the mutual funds were calculated as a percentage of the total assets in the fund, rather than on a per-participant basis, which the plaintiffs argued would be more appropriate. All of these fees were disclosed in materials distributed to the participants, and the plaintiffs did not contest the accuracy of the information provided (see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans).

Fidelity and Unisys both moved to dismiss. Fidelity claimed that it was not a fiduciary with respect to the challenged conduct and both Unisys and Fidelity claimed the plaintiffs did not adequately plead a breach of fiduciary duty. In the alternative, Unisys moved for summary judgment, claiming ERISA's safe harbor provision in Section 404(c) shielded it from liability (see Practice Note, Safe Harbor 401(k) Plans: Overview and Planning Opportunities). The district court granted the motions to dismiss, finding:

The district court also granted Unisys's motion for summary judgment in the alternative. The plaintiffs appealed.

In its August 19, 2011 decision, the Third Circuit affirmed the district court's dismissal of the actions but did not reach the summary judgment issue.

The court noted that since an entity is only a fiduciary under ERISA to the extent it possesses authority or discretionary control over a plan, the key issue was whether Fidelity was a fiduciary with respect to selecting and retaining the challenged investment options (see Practice Note, ERISA Fiduciary Duties: Overview: Functional or Inadvertent Fiduciary). The court found Fidelity was not:

The court also found the plaintiffs had not plausibly pled a claim for breach of fiduciary duty against Unisys for its choice of investment options. Relying in part on the Seventh Circuit's decision in Hecker v. Deere, and reviewing the facts of the Eighth Circuit's decision in Braden v. Wal-Mart Stores, Inc., the court held that the range of investment options and the characteristics of the options included (such as risk profiles, investment strategies and associated fees) are highly relevant and readily ascertainable facts against which plaintiffs' claims can be measured. The court did not find the plaintiffs' argument that Unisys should have negotiated per-participant investment management fees rather than fees based on a percentage of assets in the plan persuasive to this claim. Accordingly, since the retail mutual funds in the Unisys plan included a variety of risk and fee profiles and the plan itself included a variety of investment options, the court found the plaintiffs had not plausibly alleged a breach of fiduciary duty.

The court refrained from deciding whether Unisys was covered under the safe harbor provision in Section 404(c) of ERISA since the district court had properly dismissed the complaint.

This decision establishes the Third Circuit's:

For more information on fiduciary duties under ERISA, see Practice Note, ERISA Fiduciary Duties: Overview.

For more information on fee disclosure requirements for defined contribution plans, see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans.