It is a breach of ERISA fiduciary duty to use plan assets for the fiduciary’s own purposes. ERISA § 504(a)(1), 29 U.S.C. § 1104(a)(1); and ERISA § 506(b)(1), 29 U.S.C. § 1106(b)(1). In Pipefitters Local 636 Ins. Fund v. Blue Cross and Blue Shield of Mich., __ F.3d __, 2013 WL 3746217 (6th Cir. July18, 2013), the Sixth Circuit ruled that Blue Cross and Blue Shield of Michigan (“BCBSM”) breached its ERISA fiduciary duty because it paid certain state fees from the self-funded plan assets without being authorized to do so by the plan.

The Tenth Circuit soundly rejected that notion, noting “[t]he class’s interpretation leads to an absurd result: the initial agreement with a service provider would simultaneously transform that provider into a party in interest and make that same transaction prohibited under § 1106.” Instead, the appellate court clarified that a prior relationship would have to exist between the fiduciary and service provider to make it a party in interest under 29 U.S.C. § 1106 as the goal of ERISA is to prevent such transactions, which raise concerns of impropriety. Because no such evidence was provided by the class, entry of judgment was affirmed.

ERISA also prohibits plan fiduciaries from engaging in certain prohibited transactions, including transactions between the plan and certain related parties, also known as parties in interest, which the fiduciary knows constitute a direct or indirect transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan. 29 U.S.C. § 1106(a)(1).II. ERISA Liability for Fraudulent Distributions of Plan AssetsWhen participants’ money is fraudulently withdrawn from their’ benefit accounts, they have sued plan fiduciaries for breach of fiduciary duty.

29 U.S. Code § 1104.ERISA also prohibits plan fiduciaries from engaging in certain prohibited transactions, including transactions between the plan and a party in interest which the fiduciary knows constitutes a direct or indirect transfer to, or use by or for the benefit of a party in interest, of any assets of the plan. 29 U.S.C. §1106(a)(1).For example, in Count IV of the complaint, the Shell plaintiffs alleged fiduciary duties under § 1104(a)(1) include:restricting its use of Confidential Plan Participant Data solely to carrying out its Plan recordkeeping role, not using the data for nonplan purposesRecordkeeping, investment of contributions, and other tasks associated with retirement plan administration require access to large amounts of personal information, usually in electronic format. The risks involving such information are not limited to data breaches.

ficant, as summarized below.Plan sponsors that breach their fiduciary duty by failing to forward employee contributions and loan repayments by the Contribution Date generally must make the plan whole by contributing an amount equal to the plan’s lost earnings for the period between the Contribution Date and the date on which the contributions and loan repayments are forwarded to the plan.In the case of such a breach of fiduciary duty, the DOL isrequired to assess a civil penalty underSection 502(l) of ERISA (codified at 29 U.S.C. Code § 1132) against the fiduciary in an amount equal to 20% of the amount recovered by the DOL in a settlement or adverse court decision. The DOL will, however, reduce the penalty by the amount of any excise tax that the plan sponsor must pay because of a prohibited transaction under Section 4975 of the Code, as discussed below.If the DOL becomes aware that a plan sponsor has committed aprohibited transaction in violation of Section 406 of ERISA (codified at 29 U.S. Code § 1106), the DOL is required to advise the IRS.Section 4975 of the Code imposes an excise tax on plan sponsors that do not forward participant contributions and loan repayments by the Contribution Date. The excise tax is equal to 15% of the “amount involved” in such prohibited transaction, which is generally the missed earnings on the contributions and repayments discussed above.

Id. § 1104(e)(5). 29 U.S.C. § 1106.

ERISA also prohibits plan fiduciaries from engaging in certain prohibited transactions, including transactions between the plan and a party in interest which the fiduciary knows constitutes a direct or indirect transfer to, or use by or for the benefit of a party in interest, of any assets of the plan. 29 U.S.C. §1106(a)(1). It will be interesting to see if these kinds of claims take hold, after all, this is only a settlement and not a decision in federal court.

In response, the court explained that it could not assess the defendants’ factual claim at this stage of the litigation. Notably, with respect to the prohibited transactions claims, the court held that “a decision to continue certain investments, or a defendant’s failure to act, cannot constitute a ‘transaction’ for purposes of the ‘prohibited transactions’ in 29 U.S.C. § 1106” and dismissed plaintiffs’ prohibited transactions claims with respect to maintaining certain investments in the plan. On the other hand, however, the court allowed to proceed the prohibited transaction claims regarding multiple record keepers who allegedly were “parties in interest” under ERISA.

A functional fiduciary under ERISA must behave as a fiduciary; that is, the functional fiduciary cannot “deal with the assets of the plan in his own interest or for his own account” or “receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.” 29 U.S.C. § 1106(b)(1), (3). The district court denied Transamerica’s motion to dismiss and subsequently certified three ERISA classes corresponding to plaintiffs’ breach of fiduciary duty claims.

Section 406(b) of ERISA states that a plan fiduciary must refrain from “deal[ing] with the assets of the plan in [its] own interest or for [its] own account.” See 29 U.S.C. §1106(b)(1). Plaintiffs claimed that the self-dealing occurred when Unum retained the RAA funds in its general account for its own enrichment.