AT&T Fee Lawsuit Could Reach Supreme Court Next Year

The ERISA Industry Committee, the American Benefits Council, the SPARK Institute, and the Committee of Investment of Employee Benefit Assets filed an amicus brief with the Supreme Court on May 9 asking the high court to hear an appeal on behalf of AT&T in the case Bugielski et al. v. AT&T.

AT&T was initially sued in 2017 for a breach of fiduciary duty when it amended contracts to add brokerage and investment advisory services offered by Fidelity Investments for their participants in 2012 and 2014, respectively. The plaintiffs alleged that AT&T did not evaluate or disclose the compensation paid to Fidelity when it added these services. The complaint added that the fees were a prohibited transaction, did not comply with the terms of any exemption and that the plan sponsor had not followed a prudent process.

The district court initially ruled in favor of AT&T and said the compensation Fidelity received was third-party compensation and the plan itself was not a party, and therefore, AT&T was not required to evaluate and disclose it.

The U.S. Ninth Circuit Court of Appeals disagreed and remanded the case back to the district court for further proceedings in October 2022. The appeals court ruled that amending the contracts had been prohibited transactions because they added optional advisory and brokerage services to the plan paid by participant fees. The appeals court ordered the district court to start with that assumption and then decide if an exemption applies to the transactions.

ERIC and the other retirement and benefits groups argue that the 9th Circuit’s ruling would make any contract modification or renegotiation presumptively prohibited, which in turn would result in a “flood of litigation” against plan sponsors that would not be subject to a motion to dismiss. They argue that Congress did not intend routine contract renewals to be prohibited transactions under the Employee Retirement Income Security Act.

The appellants added that such an increase in litigation would increase already staggering insurance costs on the part of plan sponsors.

Tom Christina, executive director of the ERIC Legal Center, said in a statement that “Under the Ninth Circuit’s interpretation of Section 406 of ERISA, a plaintiff could sue a plan fiduciary for the routine renewal of its contract with its recordkeeper.” He added, “Based on the Ninth Circuit’s decision, a complaint alleging nothing more than that would survive a motion to dismiss and become an expensive burden for the employer.”

ERIC’s brief added that the Supreme Court, by taking this case, could help resolve a complicated split on these issues among several courts of appeals.

If the Supreme Court decides to hear the case, it would likely be heard in the 2025 term and ruled upon by June 2025.