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Compliance March 25, 2009
Delphi Fiduciary Breach Suits against State Street Dismissed
A federal judge ruled that State Street Bank and Trust Co. was acting within its scope as a directed 401(k) trustee in its 1985 Delphi Corp. stock sales and cannot be held liable for a fiduciary breach.
Reported by Fred Schneyer
A ruling by Chief U.S. District Judge Gerald E. Rosen of the U.S. District Court of the Eastern District of Michigan in a case filed by 401(k) participants said plaintiffs accused State Street of violating the Employee Retirement Income Security Act (ERISA) in its decision to sell Delphi Corp. stock as part of its work in connection the Delphi 401(k) plans (see “Delphi Retirement Plan Participants Sue State Street’).
The 401(k) plan shares were sold October 5, 2005, three days before the auto parts company filed for bankruptcy protection (see “Delphi Closer to Clearing Bankruptcy Emergence Hurdles’).
According to Rosen’s opinion granting State Street’s request to throw out the suits, a key legal touchstone in the case is a provision in State Street’s agreements with the plans that its discretionary authority over dealing with assets in company stock funds was expressly limited as being “subject to the trust agreement and the written fund policy” for each Delphi investment account.
Plaintiffs’ lawyers argued that State Street had become a functional ERISA fiduciary despite the limiting agreement language by taking on investment management authority. Their “purported evidence” did not support their assertion, Rosen ruled.
Rosen asserted that State Street, acting in light of Delphi’s “imminent” bankruptcy filing, properly took steps to begin the stock sales when it did, despite the trust agreement and plan document provisions.