Kokoshka v. Fiduciary who exercises discretionary control over retirment…

Background

Columbia University maintained a retirement plan for eligible university employees. Participants could direct how their contributions were invested, but the Investment Advisory Committee selected which investment funds were available. The plan allowed the Committee to add or remove funds, provided that participants received reasonable notice. If a participant did not move money from a removed fund, the plan allowed the Committee to redirect the money to a qualified default investment alternative.

Jerry Martin Kokoshka, a plan participant proceeding without a lawyer, had directed his contributions to the Vanguard Global Capital Cycles Fund. In December 2018, the Committee decided to remove that fund after considering its placement on a watch list, historical underperformance, and a material change in its investment philosophy and process. The Committee notified participants in February 2019 that the fund would be removed and that remaining balances would be moved to the Vanguard Institutional Target Retirement Fund unless participants transferred them elsewhere. Kokoshka did not transfer his contributions, so his balance was automatically moved to the default fund.

Kokoshka alleged that the Committee breached its fiduciary duties under the Employee Retirement Income Security Act of 1974, or ERISA. He claimed that the Committee negligently failed to consider the effect of removing the fund on his individual account and acted in its own interest rather than for plan participants. He sought damages and changes to the Committee’s future consideration of individual accounts.

The Committee’s summary-judgment motion

The Committee moved for summary judgment. Summary judgment is entered when the evidence shows that no genuine dispute over an important fact requires a trial and that the moving party is entitled to judgment under the law. The Committee argued first that ERISA section 404(c) provided a safe harbor from liability for losses resulting from a participant’s control over investments. In the alternative, it argued that Kokoshka had not produced evidence showing a breach of fiduciary duty.

Because Kokoshka did not submit his own statement of disputed facts or evidence opposing the motion, the court deemed the Committee’s factual assertions admitted under the applicable local rule. The court nevertheless considered Kokoshka’s allegations and opposition papers under the standards applicable to a party without a lawyer.

Section 404(c) safe harbor

The court held that the section 404(c) safe harbor did not apply. The safe harbor can protect fiduciaries from losses resulting from a participant’s exercise of control over assets in an individual account. But Kokoshka’s claim concerned the Committee’s decision to remove the GCC Fund from the plan’s menu of investment options. Participants did not control which funds the Committee made available. The court therefore concluded that the alleged loss arose from the Committee’s own fiduciary decision, not from Kokoshka’s investment choice or his failure to act after receiving the removal notice.

The court also rejected any suggestion that failing to administer the plan under section 404(c) itself violated ERISA. The provision is a liability safe harbor, not an independent requirement whose violation automatically creates a breach of fiduciary duty.

Fiduciary-duty claim

ERISA imposes a duty of care, sometimes called prudence, and a duty of loyalty on plan fiduciaries. The duty of care concerns the methods used to evaluate and monitor investments, rather than simply the investment’s eventual results. The duty of loyalty requires decisions to be made for the interests of plan participants and beneficiaries.

The court found no triable issue on either duty. The Committee had considered the GCC Fund’s watch-list status, historical underperformance, and changed investment philosophy. A consulting firm’s quarterly review reported that the fund had underperformed during three quarters of 2018 and during the preceding five years. The Committee also provided evidence that it thoroughly considered the removal decision and followed the plan’s notice procedures.

The court further held that ERISA did not require the Committee to keep offering a fund merely because one participant wanted to invest in it. The Committee’s fiduciary duties were owed to the plan as a whole, and the plan reserved to the Committee the authority to select available investment options. On the undisputed record, no reasonable jury could find that the Committee breached its duty of care or loyalty.

Disposition

The court granted the Committee’s motion for summary judgment. It directed the clerk to terminate the motion, send the opinion and order to Kokoshka, and close the case.