Liao v. Fisher Asset Management, LLC

Background

Frank Liao worked for Fisher from October 18, 2004, through July 14, 2006, and participated in Fisher’s 401(k) Plan, an Employee Retirement Income Security Act (ERISA) defined-contribution plan. Fisher made matching contributions to Liao’s account, but those contributions had not vested when his employment ended because he had worked for less than two years.

Under the Plan, forfeiture occurred after a participant incurred five consecutive breaks in vesting service after leaving employment. The court stated that Liao’s unvested contributions were forfeited on July 14, 2011. Fisher later directed the account administrator to liquidate the unvested contributions and their earnings. Liao alleged that removing earnings accumulated after July 14, 2011 violated the Plan and ERISA.

Liao’s amended complaint asserted three types of claims: a claim for benefits under ERISA § 502(a)(1)(B), fiduciary-duty claims under §§ 502(a)(2) and 502(a)(3), and a prohibited-transaction claim under ERISA § 406, 29 U.S.C. § 1106. The court had previously dismissed all of these claims, and Liao amended his complaint while bringing the same causes of action.

Claim for Plan Benefits

For a claim under 29 U.S.C. § 1132(a)(1)(B), a plaintiff must identify an ERISA plan provision that entitles the plaintiff to the claimed benefits. Liao relied on Plan Sections 1.14, 1.127, 1.77, 3.11(a), and 3.12. The court had already considered Sections 1.77 and 3.11(a), and it addressed the newly cited provisions in this order.

Liao argued that the provisions, read together, showed that the participant owned all assets in the account except the specific amount defined as a forfeiture. Fisher argued that the provisions instead addressed annual-addition limits, the temporary holding of forfeitures, and the valuation of accounts, without creating a right to earnings on forfeited funds.

The court agreed with Fisher. It held that Liao forfeited his right to the unvested funds on July 14, 2011, and that none of the newly cited provisions created an exception for earnings on those funds. The court therefore held that Liao failed to identify a Plan provision or other authority entitling him to the post-2011 earnings.

Fiduciary-Duty Claims

Liao’s claims under §§ 1132(a)(2) and 1132(a)(3) were based on his assertion that Fisher violated the Plan by forfeiting more than the Plan authorized. The court reiterated its conclusion that Fisher did not violate the Plan by forfeiting the earnings on the unvested funds. Because the alleged underlying violation was not adequately stated, the court held that Liao also failed to state claims for breach of fiduciary duty.

Prohibited-Transaction Claim

ERISA § 406 prohibits certain transactions involving a plan, including the transfer or use of plan assets for the benefit of a party in interest. The court had previously held that reallocating forfeited funds within the Plan in accordance with the Plan’s terms, including using those funds to defray Plan expenses, was not a prohibited transaction.

Liao alleged that Fisher instructed the account administrator to liquidate amounts from his account and remit them to Fisher for Fisher’s use and benefit. The court found this allegation inadequate because Liao did not provide enough factual detail about how the funds were used. The court also noted that the complaint elsewhere alleged that Fisher used the forfeitures to defray Plan expenses, which the court determined was not a prohibited transaction. The court therefore held that Liao had not adequately stated a prohibited-transaction claim.

Disposition

The court granted Fisher’s motion to dismiss without leave to amend. It directed the clerk to enter judgment for Fisher and close the case. The court relied on the conclusion that further amendment would be futile because Liao had already amended his complaint and the amended complaint contained the same defects as the earlier complaint.