The Fourth Circuit affirmed Aon Hewitt Investment Consulting’s trial victory in a 250,000-member class action suit alleging that Aon breached ERISA’s fiduciary duties.
Aon was initially the Lowe’s 401(k) plan’s investment advisor and later was engaged as the plan’s 3(38) delegated fiduciary. The plaintiffs’ fiduciary breach claims alleged that, after being retained as a delegated fiduciary, Aon transferred plan assets to an Aon fund with an unproven track record that underperformed. Plaintiffs also claimed that Aon’s sales efforts to acquire delegated fiduciary work and their recommendation to streamline the Lowe’s 401(k) plan’s investment menu were self-motivated and not in the plan’s best interest. After a five-day trial, the district court ruled in favor of Aon.
The Fourth Circuit affirmed. Regarding Aon’s sales efforts, the Court held that this conduct was not investment advice and could not violate the duty of loyalty. As for Aon’s recommendation to streamline the plan’s investment menu, the recommendation was not motivated by self-interest: Lowe’s requested the meeting to discuss a potential structural change before Aon decided to pursue becoming a delegated fiduciary of the Lowe’s plan, Aon consistently recommended a plan structure that was less likely to lead to the engagement of a delegated fiduciary, and the plan’s committee chose the structural changes after determining that the structure was more straightforward for Plan participants to understand. The Court agreed with the district court that Aon may have received an incidental benefit from the engagement, but their recommendations were not motivated by self-interest.
Concerning Aon’s selection and monitoring of their proprietary fund after its retention as a delegated fiduciary, the Court found that Aon engaged in a reasoned decision-making process when reviewing comparable funds and continued monitoring the fund upholding their duty of prudence. The Court reiterated that the duty of prudence is based on “process, not results.”
With this decision, the Fourth Circuit reiterates that, despite many plaintiffs’ successes in earlier litigation stages, a prudent process for selecting and monitoring investments can win the day for fiduciary breach claims. In addition, the opinion is noteworthy for delegated fiduciaries – and the plan sponsors and fiduciaries that engage them – because the Fourth Circuit declined to hold that a plan service provider that is a fiduciary retains that fiduciary status when cross-selling a new product or service to the plan. Other circuits had held that initial contract negotiation and sales efforts were not fiduciary conduct, but applying those conclusions to an existing fiduciary relationship is novel.
