Plaintiffs claim that Spink is inapposite because the Supreme Court was determining duties with respect to ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D), and that Count I of their Complaint arises under ERISA § 406(b), 29 U.S.C. § 1106(b), and Counts IV and VII arise under ERISA § 404, 29 U.S.C. § 1104. That argument is unpersuasive for the following reasons.
Spink did concern liability under § 406(a)(1)(D), which prohibits certain acts by a fiduciary. However, to determine whether the employer was acting as a fiduciary, the Court felt it necessary to analyze and apply the definition of fiduciary set forth in the general definitions section of subchapter I of ERISA. ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A).
That definition applies to all provisions of ERISA subchapter I, "Protection of Employee Benefit Rights",
see 29 U.S.C. § 1002, and, thus, all portions of ERISA dealing with fiduciaries. See Spink, 116 S. Ct. at 1788-89 & n.2.
It is clear from the plain language of the statute that both the duty to refrain from engaging in prohibited transactions, set forth in § 406, and the general fiduciary duties, set forth in § 404, are triggered only if the participant involved is a fiduciary within the meaning of the statute. 29 U.S.C. § 1106 ("A fiduciary with respect to a plan shall not . . ."); 29 U.S.C. § 1104 ("[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries . . ."). Thus, as in Spink, the threshold inquiry as to Counts I, IV, and VII of Plaintiffs' Complaint is whether fiduciary status existed. For liability to attach, Defendants must have acted in a fiduciary capacity as to each count which charges a violation of § 404 or § 406(a) or (b). Accord Varity Corp. v. Howe, 516 U.S. 489, 134 L. Ed. 2d 130, 116 S. Ct. 1065, 1071 (1996); John Hancock, 510 U.S. at 96 ("Congress commodiously imposed fiduciary standards on persons whose actions affect the amount of benefits retirement plan participants will receive") (emphasis added); Walling v. Brady, 119 F.3d 233, 1997 U.S. App. LEXIS 19799, 1997 WL 414863, at *5 (3d Cir. July 25, 1997) ("ERISA is concerned with the administration of benefit plans and not with the precise design of the plan.") (citations and internal quotations omitted).
In their Opposition to Defendants' Motions to Dismiss, Plaintiffs make it clear that their challenge is to AT&T's allocation of plan assets and liabilities resulting from the spinoff of Lucent and its benefit plans. Thus, the Court must determine whether that act is fiduciary in nature. If it is, then Plaintiffs have stated claims in Counts I, IV, and VII of their Complaint.
Defendants argue that the decision to restructure the AT&T businesses and spin-off their benefit plans was a business decision not subject to the fiduciary standards of ERISA. They contend that any allocation and transfer of assets between the plans are ministerial acts intended to implement that transfer, not fiduciary acts. Plaintiffs strenuously argue that the allocation of plan assets and liabilities between the AT&T and Lucent plans is a fiduciary act.
The Court looks first at ERISA's broad definition of fiduciary, contained in ERISA § 3(21)(a). It provides, in relevant part, that a "person is a fiduciary with respect to a plan", and therefore subject to ERISA fiduciary duties, "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A).
AT&T acts as both an employer and a plan administrator, as permitted under ERISA. See Varity Corp., 516 U.S. 489, 134 L. Ed. 2d 130, 116 S. Ct. 1065, 1071. However, not all of AT&T's business activities involve plan management or administration. See, e.g., United Steelworkers of Am., Local 2116 v. Cyclops Corp., 860 F.2d 189, 198 (6th Cir. 1988); Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir. 1986), cert. denied, 481 U.S. 1016, 95 L. Ed. 2d 500, 107 S. Ct. 1893 (1987); Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1417 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113, 89 L. Ed. 2d 288, 106 S. Ct. 1167 (1986). When "employers wear 'two hats' as employers and administrators, they assume fiduciary status only when and to the extent that they function in their capacity as plan administrators, not when they conduct business that is not regulated by ERISA." Blaw Knox Retirement Income Plan v. White Consol. Indus., Inc., 998 F.2d 1185, 1189 (3d Cir. 1993) (quoting Payonk v HMW Indus., Inc., 883 F.2d 221 (3d Cir. 1989) (internal citations and quotations omitted)).
Under prevailing ERISA law, it is clear that whether a party acts as a fiduciary is to be determined with respect to each particular activity at issue. See, e.g., Maniace v. Commerce Bank, 40 F.3d 264, 267 (8th Cir. 1994), cert. denied, 514 U.S. 1111, 131 L. Ed. 2d 854, 115 S. Ct. 1964 (1995); Georgia-Pac., 19 F.3d at 1188; Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 61 (4th Cir. 1992), cert. denied, 506 U.S. 1081, 122 L. Ed. 2d 359, 113 S. Ct. 1051 (1993); Arakelian v. National W. Life Ins. Co., 748 F. Supp. 17, 22 (D.D.C. 1990) (citation omitted). Defendants argue that neither plan amendment nor allocation of assets are fiduciary actions, but are settlor functions not subject to the fiduciary standards of ERISA.
Under ERISA, a plan sponsor is free, "for any reason at any time, to adopt, modify, or terminate welfare plans" and does not act in a fiduciary capacity when it does so. Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 115 S. Ct. 1223, 1228, 131 L. Ed. 2d 94 (1995) (expressly approving Adams v. Avondale Indus., Inc., 905 F.2d 943, 947 (6th Cir.), cert. denied, 498 U.S. 984, 112 L. Ed. 2d 529, 111 S. Ct. 517 (1990)). This is because, under trust law principles, there is a distinction between those actions creating, altering or terminating a trust, which are deemed settlor functions, and those actions managing and administering the investment and use of the trust assets, which are deemed fiduciary functions. See Spink, 116 S. Ct. at 1789-90. The settlor-fiduciary distinction had already been applied in the context of welfare plans, see Curtiss-Wright, 115 S. Ct. at 1228, and was expressly extended to pension plans in Spink. Id. ("We think that the rules regarding fiduciary capacity--including the settlor-fiduciary distinction--should apply to pension and welfare plans alike.").
Further, it is well settled that ERISA's fiduciary duties do not apply to the allocation and transfer of assets pursuant to a spin-off. Blaw Knox, 998 F.2d at 1189; Bigger v. American Commercial Lines, 862 F.2d 1341 (8th Cir. 1988).
As the Third Circuit has stated regarding the distinction between fiduciary and settlor functions, "'Discretion' for the purpose of determining the applicability of fiduciary obligations means solely that the plan administrator is making a choice reserved to it by the plan document in administering the plan, not tinkering with the plan document itself." Walling, 119 F.3d 233, 1997 U.S. App. LEXIS 19799, 1997 WL 414863, at *6.
There are two types of benefit plans under ERISA: defined contribution plans and defined benefit plans. A defined contribution plan is one in which the plan:
provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.
29 U.S.C. § 1002(34). Thus, the individual plan owner "holds his or her own account and the eventual benefits received by the plan member are tied exclusively to the level of earnings on those funds during the life of the plan." John Blair Communications, Inc. Profit Sharing Plan v. Telemundo Group, Inc. Profit Sharing Plan, 26 F.3d 360, 363 (2d Cir. 1994). By contrast, a defined benefit plan is one in which an individual does not own the assets of the plan, but "a promise of benefits", and the employer bears the investment risk associated with the assets of the plan. Georgia-Pac., 19 F.3d at 1186. The plans in this case are defined benefit plans.
Given this distinction, the reasoning and holding of Bigger, supra, are particularly instructive. In Bigger, the participants and beneficiaries of a spun-off pension plan contended that the employer breached a fiduciary duty when it failed to spin-off surplus assets from the original defined benefit plan to the new plan. 862 F.2d at 1342. Where a spin-off of a defined benefit plan occurs, section 208 of ERISA, 29 U.S.C. § 1058, requires that the employer fully fund the spun-off plan so that each participant receives a benefit equal to or greater than their entitlement before the spin-off. Looking to the language and legislative history of the fiduciary duty and spin-off provisions of ERISA, the Eighth Circuit held that the fiduciary duty provisions of § 404 do not apply to a spin-off of plan assets, so long as the provisions of ERISA § 208 are complied with. Bigger, 862 F.2d at 1344-47. See also Faircloth v. Lundy Packing Co., 91 F.3d 648, 657 (4th Cir. 1996), cert. denied, 136 L. Ed. 2d 677, 117 S. Ct. 738 (1997); Kuper v. Iovenko, 66 F.3d 1447, 1456 (6th Cir. 1995). In other words, Congress has enacted ERISA section 208, 29 U.S.C. § 1058, as the specific means by which to challenge a plan spin-off.
Plaintiffs cite John Blair, 26 F.3d at 365, 367, for the proposition that a spin-off is subject to the fiduciary standards of ERISA. However, John Blair is distinguishable. First, the employer in John Blair had conceded its fiduciary status. Id. at 367. Second, the Second Circuit recognized the important distinction between defined-benefit plans, like those at issue here, and the defined contribution plans at issue in John Blair :
In both Koch Indus., Inc. v. Sun Co., 918 F.2d 1203 (5th Cir.1990), and Bigger v. American Commercial Lines, 862 F.2d 1341 (8th Cir. 1988), the courts examined the effect of a spinoff on defined benefit plan beneficiaries. . . . Examining the differences between defined benefit and defined contribution plans, both courts concluded that, unlike a defined contribution plan where a beneficiary's level of benefits depends on the assets retained in his or her individual account, with a defined benefit plan "the level of benefits does not depend on the amount of funds transferred." Koch, 918 F.2d at 1206; see also Bigger, 862 F.2d at 1345 . . . In neither case didemployees have "individual 'account balances' that depended on investment returns." Koch at 1207. In both cases, . . . individual plan members were guaranteed the same level of benefits as before the spinoff regardless of when the plan assets were transferred. Thus, both courts ruled that . . . ERISA was not violated. . . . If the Old Blair Plan were a defined benefit plan  it would matter little to the individual New Blair Plan members whether the plan lost out on roughly $ 500,000 as long as those members were guaranteed their promised benefits at retirement. . . . However, because the level of benefits in a defined contribution plan is materially affected if the interim gains are not transferred, the analysis used in defined benefits cases is inapposite.