ERISA Complaint Against AT&T Returned for Review by Appeals Court

An appellate court has rejected a favorable district court ruling for AT&T Services Inc.’s benefit plan investment committee regarding allegations that it did not properly vet and disclose dealings with third-party service providers for its 401(k) plan.

The U.S. 9th Circuit Court of Appeals reversed a 2021 decision by lower courts that sided with AT&T in passing summary judgment on a 2017 complaint that AT&T breached fiduciary duty when it amended contracts to add brokerage and investment advisory services to participants via Fidelity Investments.

In an opinion written by U.S. Circuit Judge Bridget S. Bade filed on August 4, a three-judge panel remanded the case back to the U.S. District Court for the Central District of California, seeking review of most of the allegations made in the original complaint.

AT&T plans to request a rehearing en banc, in which all active judges of the court hear the case, according to an August 9 court filing for an extension of time. The company, through a spokesperson, said “We are disappointed with aspects of the court’s ruling and are evaluating our options.”

In that initial case, Bugielski v. AT&T Services Inc., the plaintiffs alleged that AT&T’s benefits committee failed to properly evaluate and disclose the compensation received by the plan’s recordkeeper, Fidelity Workplace Services, from mutual funds provided by BrokerageLink, Fidelity’s brokerage platform, and Financial Engines Advisors LLC, according to court filings. In addition to engaging in an allegedly “prohibited transaction” with Fidelity by failing to obtain and report direct and indirect compensation, the committee also caused participants to pay “grossly excessive fees,” according to the complaint.

After multiple rulings in the case, the 2021 summary judgment by the district court sided with AT&T, saying the defendants acted prudently in monitoring the retirement plan’s expenses. But after considering the appeal, the 9th Circuit directed the court to take another look.

“Disagreeing with other circuits [cited by AT&T], the panel concluded that AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, caused the Plan to engage in a prohibited transaction,” Bade wrote. “Specifically, the panel remanded for the district court to consider whether Fidelity received no more than ‘reasonable compensation’ from all sources, both direct and indirect, for the services it provided the Plan.”

In addition, the 9th Circuit reversed the district court’s decision on a duty-of-prudence claim by AT&T, noting that, as fiduciary under the Employee Retirement Income Security Act of 1974, the retirement committee was required to monitor the compensation Fidelity received for the brokerage services offered to participants.

In its analysis, the panel reviewed the cases referenced by AT&T to argue it a) had not engaged in prohibited transactions, b) had not breached duty-of-prudence and c) had not breached any “duty of candor” claims in its reporting of the compensation received.

After review, the panel remanded all of the plaintiffs’ arguments back to the district court except for the reporting of the BrokerageLink compensation, meaning yet another turn for both the defendants and the plaintiffs in the long-running complaint.

“On Plaintiffs’ reporting claim, we affirm the judgment of the district court as to the compensation from BrokerageLink and reverse as to the compensation from Financial Engines,” Bade wrote.