In rejecting plaintiffs' claims and affirming the district court's order of dismissal, the Third Circuit relied heavily on its own prior decision in Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) and on the Seventh Circuit's decisions in Leimkuehler v. American United Life Insurance Co., 713 F.3d 905 (7th Cir. 2013) and Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), supplemented by 569 F.3d 708 (7th Cir. 2009). The Third Circuit held that Renfro, Leimkuehler and Hecker stand for the proposition that service providers are not acting in a fiduciary capacity when they create and manage a menu of possible investment options for the plan -- even where the service provide may financially benefit from one or more of those options -- so long as plan fiduciaries have the final determination over what investment options the plan offers to participants. Noting that service providers owe no fiduciary duty with respect to negotiating its own compensation, the court found that plan trustees had control and final approval over investment options and, as such, any claim for excessive compensation would not lie, at least as against John Hancock.
The Third Circuit also rejected plaintiffs' argument that John Hancock took on fiduciary status by retaining the authority to change (a) the investment options offered on the menu and (b) the fees that it charged under the agreement with the plan. Sticking with its theme, the court reasoned that even though John Hancock had the contractual right to make such modifications, it could do so only after providing notice to the plan trustees, who had the power to accept such changes or terminate the contract without penalty. Thus, the court reasoned that ultimate authority still resided with the trustees and John Hancock had no fiduciary obligations.
Finally, the court rejected plaintiffs' argument that John Hancock was a fiduciary because it rendered investment advice to the plans for a fee. See generally 29 U.S.C. 1002(21)(A)(ii); 29 C.F.R. 2510.3-21(c)(1). Applying the Department of Labor's "investment advisor" regulation, the Third Circuit held that plaintiffs could not establish the requisite mutual assent to an advisory relationship because within the operative contracts John Hancock disclaimed any fiduciary responsibility or obligation to provide investment advice.
In the end, the holding in Santomenno is not a surprise. It continues the trend among appellate courts rejecting ERISA breach of fiduciary duty claims brought against plan service providers for excessive compensation. Claims for excessive compensation paid to service providers appear to lie, if at all, against the plan fiduciaries that entered into the contractual relationships on behalf of the plan in the first place. Of course, plan fiduciaries often lack the amount of fiduciary liability insurance coverage carried by large institutions who provide services to employee benefit plans, so providers will likely remain targets. But this ever-increasing line of decisions disclaiming fiduciary status should allow retirement plan service providers to breathe easier when facing any future challenges.