FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT J. BUGIELSKI;
CHAD S.
SIMECEK, individually as
participants in the AT and T
Retirement Savings Plan and as a
representatives of all persons similarly
situated,
Plaintiffs-Appellants,
v.
AT&T SERVICES, INC.; AT&T
BENEFIT PLAN INVESTMENT
COMMITTEE,
Defendants-Appellees.
No. 21-56196
D.C. No.
2:17-cv-08106-
VAP-RAO
OPINION
Appeal from the United States District Court
for the Central District of California
Virginia A. Phillips, Chief District Judge, Presiding
Argued and Submitted October 17, 2022
Portland, Oregon
Filed August 4, 2023
2 BUGIELSKI V. AT&T SERVICES, INC.
Before: Richard A. Paez and Bridget S. Bade, Circuit
Judges, and Raner C. Collins,
*
District Judge.
Opinion by Judge Bade
SUMMARY
**
Employee Retirement Income Security Act
The panel affirmed in part and reversed in part the
district court’s summary judgment in favor of the defendants
in an ERISA class action brought by former AT&T
employees who contributed to AT&T’s retirement plan, a
defined contribution plan.
Plaintiffs brought this class action against the Plan’s
administrator, AT&T Services, Inc., and the committee
responsible for some of the Plan’s investment-related duties,
the AT&T Benefit Plan Investment Committee (collectively,
“AT&T”). Plaintiffs alleged that AT&T failed to investigate
and evaluate all the compensation that the Plan’s
recordkeeper, Fidelity Workplace Services, received from
mutual funds through BrokerageLink, Fidelity’s brokerage
account platform, and from Financial Engines Advisors,
L.L.C. Plaintiffs alleged that (1) AT&T’s failure to consider
this compensation rendered its contract with Fidelity a
*
The Honorable Raner C. Collins, United States District Judge for the
District of Arizona, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
BUGIELSKI V. AT&T SERVICES, INC. 3
“prohibited transaction” under ERISA § 406, (2) AT&T
breached its fiduciary duty of prudence by failing to consider
this compensation, and (3) AT&T breached its duty of
candor by failing to disclose this compensation to the
Department of Labor.
The panel reversed the district court’s grant of summary
judgment on the prohibited-transaction claim. Relying on
the statutory text, regulatory text, and the Department of
Labor’s Employee Benefits Security Administration’s
explanation for a regulatory amendment, the panel held that
the broad scope of § 406 encompasses arm’s-length
transactions. Disagreeing with other circuits, 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. The panel remanded for the district court to
consider whether AT&T met the requirements for an
exemption from the prohibited-transaction bar because the
contract was “reasonable,” the services were “necessary,”
and no more than “reasonable compensation” was paid for
the services. 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.
For similar reasons, the panel also reversed the district
court’s summary judgment on the duty-of-prudence
claim. The panel concluded that, as a fiduciary, AT&T was
required to monitor the compensation that Fidelity received
through BrokerageLink and Financial Engines. The panel
remanded for the district court to consider the duty-of-
prudence claim under the proper framework in the first
instance.
4 BUGIELSKI V. AT&T SERVICES, INC.
On the reporting claim, the panel affirmed as to the
compensation from BrokerageLink and reversed as to the
compensation from Financial Engines. The panel concluded
that AT&T adequately reported the compensation from
Financial Engines on its Form 5500s with the Department of
Labor, but it did not adequately report the compensation
from Financial Engines because an alternative reporting
method for “eligible indirect compensation” was not
available.
COUNSEL
John J. Nestico (argued), Schneider Wallace Cottrell
Konecky LLP, Charlotte, North Carolina; Todd M.
Schneider and James A. Bloom, Schneider Wallace Cottrell
Konecky LLP, Emeryville, California; Todd S. Collins and
Ellen T. Noteware, Berger Montague PC, Philadelphia,
Pennsylvania; Jason H. Kim, Schneider Wallace Cottrell
Konecky LLP, Los Angeles, California; Eric Lechtzin,
Edelson Lechtzin LLP, Newtown, Pennsylvania; Shoham J.
Solouki, Solouki Savoy LLP, Los Angeles, California; for
Plaintiffs-Appellants.
Ashley E. Johnson (argued), Paulette Miniter, and Katie R.
Talley, Gibson Dunn & Crutcher LLP, Dallas, Texas; Nancy
G. Ross, Mayer Brown LLP, Chicago, Illinois; for
Defendants-Appellees.
BUGIELSKI V. AT&T SERVICES, INC. 5
OPINION
BADE, Circuit Judge:
The Employee Retirement Income Security Act of 1974
(“ERISA”) establishes standards for employee benefit plans
to protect the interests of plan participants. See 29 U.S.C.
§ 1001. To that end, ERISA imposes a duty of prudence
upon those who manage employee retirement plans,
prohibits plans from engaging in transactions that could
harm participants’ interests, and mandates disclosures to the
United States Department of Labor.
Robert Bugielski and Chad Simecek (“Plaintiffs”) are
former AT&T employees who contributed to AT&T’s
retirement plan (“the Plan”), a defined contribution plan.
They brought this class action against the Plan’s
administrator, AT&T Services, Inc., and the committee
responsible for some of the Plan’s investment-related duties,
the AT&T Benefit Plan Investment Committee (collectively,
“AT&T”). Plaintiffs allege that AT&T failed to investigate
and evaluate all the compensation that the Plan’s
recordkeeper, Fidelity Workplace Services (“Fidelity”),
received in connection with that role. Plaintiffs argue that
(1) AT&T’s failure to consider this compensation rendered
its contract with Fidelity a “prohibited transaction” under
ERISA § 406, (2) AT&T breached its duty of prudence by
failing to consider this compensation, and (3) AT&T
improperly failed to disclose this compensation to the
Department of Labor.
The district court granted summary judgment in AT&T’s
favor. It concluded that Plaintiffs’ prohibited-transaction
and duty-of-prudence claims failed because AT&T had no
obligation to consider this compensation. It also concluded
6 BUGIELSKI V. AT&T SERVICES, INC.
that AT&T was not required to disclose this compensation
on its reports to the Department of Labor.
Because we conclude that AT&T was required to
consider this compensation and report a portion of it, we
affirm in part, reverse in part, and remand for further
proceedings.
I
A
Fidelity has served as the Plan’s recordkeeper since
2005. As recordkeeper, Fidelity performs various
administrative functions, such as enrolling new participants
in the Plan, maintaining participants’ accounts, and
processing participants’ contributions to the Plan. In
exchange for these services, Fidelity charges the Plan a flat
fee for each participant. Fidelity also offers other services to
participants on an as-needed basis, including administering
loans and processing withdrawals. Fees for these
transactions are charged directly to the Plan participant
requesting the service.
In approximately 2012, AT&T amended its contract with
Fidelity to provide Plan participants with access to Fidelity’s
brokerage account platform, BrokerageLink. For a fee,
BrokerageLink allows participants to invest in mutual funds
not otherwise available through the Plan. These fees are
based on a brokerage commission schedule that Fidelity
provides to participants. For example, a participant might
pay a $75 fee to purchase shares of a particular fund.
In addition to the fees it receives from participants,
Fidelity receives “revenue-sharing fees” from the mutual
funds available through BrokerageLink. For example, if a
participant invested in a mutual fund offered through
BUGIELSKI V. AT&T SERVICES, INC. 7
BrokerageLink, the fund would pay Fidelity a percentage of
the amount the participant invested. Participants have
invested billions of dollars in these mutual funds, resulting
in millions of dollars in revenue-sharing fees for Fidelity.
In 2014, AT&T contracted with Financial Engines
Advisors, L.L.C. (“Financial Engines”), to provide optional
investment advisory services to Plan participants. For an
asset-based fee, Financial Engines would manage a
participant’s investments.
1
However, to do so, Financial Engines needed access to
participants’ accounts. Accordingly, AT&T amended its
contract with Fidelity to provide Financial Engines with this
access. And in its contract with Financial Engines, AT&T
authorized Financial Engines to contract directly with
Fidelity to secure the requisite access. Financial Engines and
Fidelity then entered into a separate agreement under which
Fidelity received a portion of the fees Financial Engines
earned from managing participants’ investments. The
compensation Fidelity received from Financial Engines was
significant; in some years, Fidelity received approximately
half of the total fees that Financial Engines charged
participants, resulting in millions of dollars in compensation
for Fidelity.
B
In their third amended complaint, Plaintiffs allege that
AT&T violated several ERISA provisions by failing to
consider the significant compensation that Fidelity received
through BrokerageLink and Financial Engines.
1
Initially, Financial Engines also charged a flat per-participant fee, but
AT&T later renegotiated to eliminate this fee.
8 BUGIELSKI V. AT&T SERVICES, INC.
Plaintiffs first allege that AT&T’s amendment of its
contract with Fidelity to incorporate the services of
BrokerageLink and Financial Engines was a prohibited
transaction under § 406(a)(1)(C). See 29 U.S.C. § 1106.
Section 406 “prohibits fiduciaries from involving the plan
and its assets in certain kinds of business deals,” Lockheed
Corp. v. Spink, 517 U.S. 882, 888 (1996), and § 406(a)(1)(C)
specifically prohibits the “furnishing of goods, services, or
facilities” between a plan and a “party in interest,” 29 U.S.C.
§ 1106(a)(1)(C).
Although ERISA § 408 exempts certain transactions
from § 406’s reach, Plaintiffs argue that none of those
exemptions applies to the transaction between AT&T and
Fidelity. Specifically, Plaintiffs argue that this transaction
was not exempt under § 408(b)(2), which exempts from
§ 406’s bar service contracts or arrangements between a plan
and a “party in interest” if (1) the contract or arrangement is
reasonable, (2) the services are necessary for the
establishment or operation of the plan, and (3) no more than
reasonable compensation is paid for the services. 29 U.S.C.
§ 1108(b)(2); 29 C.F.R. § 2550.408b-2(a). For the contract
or arrangement to be “reasonable,” the party in interest must
disclose to the plan’s fiduciary all compensation the party
expects to receive “in connection with” the services provided
pursuant to the contract or arrangement.
2
29 U.S.C.
§ 1108(b)(2)(B), 29 C.F.R. § 2550.408b-2(c)(1)(iv); see
also Reasonable Contract or Arrangement Under Section
408(b)(2)—Fee Disclosure, 77 Fed. Reg. 5632-01 (Feb. 3,
2
The party in interest must be a “covered service provider” and provide
services to a “covered plan.” 29 U.S.C. § 1108(b)(2)(B); 29 C.F.R.
§ 2550.408b-2(c)(1). AT&T does not dispute that Fidelity was a covered
service provider and the Plan was a covered plan.
BUGIELSKI V. AT&T SERVICES, INC. 9
2012). Plaintiffs argue that AT&T’s amendment of the
contract with Fidelity to incorporate Financial Engines’s and
BrokerageLink’s services did not satisfy the requirements of
§ 408(b)(2) because AT&T failed to obtain the requisite
disclosures of the compensation Fidelity received from these
service providers or determine that such compensation was
“reasonable.” 29 U.S.C. § 1108(b)(2); 29 C.F.R.
§ 2550.408b-2(a).
Plaintiffs also allege that AT&T violated § 404 and its
duty to act prudently by failing to consider this
compensation. See 29 U.S.C. § 1104. Section 404 imposes
a duty of prudence upon fiduciaries, requiring them to
discharge their duties “with the care, skill, prudence, and
diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims.” Id. § 1104(a)(1)(B).
Finally, Plaintiffs allege that AT&T was required to
include this compensation on its annual report, the “Form
5500.” ERISA requires a plan’s administrator to file an
annual report with the Department of Labor. See id. § 1023.
Subject to some exceptions, plan administrators are
generally required to identify in the report any people or
entities that received compensation for providing services to
the plan, as well as the amount of compensation received.
Id. § 1023(c)(3); Revision of Annual Information
Return/Reports, 72 Fed. Reg. 64731-01, 64739 (Nov. 16,
2007). Plaintiffs allege that AT&T did not satisfy this
obligation.
C
The district court granted summary judgment in AT&T’s
favor. The court addressed the § 404 duty-of-prudence claim
10 BUGIELSKI V. AT&T SERVICES, INC.
first, rejecting Plaintiffs’ argument that a prudent fiduciary
would have considered the compensation Fidelity received
from Financial Engines and BrokerageLink. The court
adopted the reasoning of another district court in Marshall v.
Northrop Grumman Corp., No. 2:16-cv-06794, 2019 WL
4058583, at *11 (C.D. Cal. Aug. 14, 2019), and concluded
that Plaintiffs’ argument “fails as a matter of law” because
this sort of third-party compensation “exists independent of
the Plan and stems from an agreement to which the Plan is
not a party,” so AT&T is not required to consider it.
The district court next rejected Plaintiffs’ § 406
prohibited-transaction claim, concluding that even if a
prohibited transaction occurred, AT&T satisfied the
exemption requirements of § 408(b)(2). However, in its
analysis of the exemption’s “reasonable compensation”
requirement, the district court considered only the
recordkeeping expenses the Plan paid directly to Fidelity.
Although Plaintiffs argued that the compensation Fidelity
received from BrokerageLink and Financial Engines also
must be considered, the district court rejected this argument
for the same reason it rejected Plaintiffs’ argument that
AT&T violated its duty of prudence: AT&T “had no duty to
investigate or consider the third-party compensation Fidelity
was receiving from Financial Engines and/or
BrokerageLink.” The court also found that the remaining
exemption requirements were satisfied because Fidelity
provided adequate disclosure to AT&T of the compensation
Fidelity would receive from Financial Engines and
BrokerageLink, and there was no dispute that the services
were necessary for the Plan.
Finally, the district court determined that Plaintiffs’
reporting claim failed because AT&T accurately completed
its Form 5500s. The court concluded that the compensation
BUGIELSKI V. AT&T SERVICES, INC. 11
from Financial Engines and BrokerageLink qualified as
“eligible indirect compensation,” and therefore AT&T
properly used an alternative reporting method that did not
require the amount of this compensation to be reported on
the Form 5500.
II
We review de novo a district court’s decision to grant
summary judgment. KST Data, Inc. v. DXC Tech. Co., 980
F.3d 709, 713 (9th Cir. 2020). “We also review de novo the
district court’s interpretation of ERISA.” Leeson v.
Transamerica Disability Income Plan, 671 F.3d 969, 974
(9th Cir. 2012).
III
A
To address Plaintiffs’ prohibited-transaction claim, we
begin with the text of ERISA § 406. See Harris Tr. & Sav.
Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 254
(2000) (“In ERISA cases, ‘[a]s in any case of statutory
construction, our analysis begins with the language of the
statute . . . . And where the statutory language provides a
clear answer, it ends there as well.’” (alterations in original)
(quoting Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438
(1999))).
Under § 406(a)(1)(C), a fiduciary “shall not cause the
plan to engage in a transaction, if he knows or should know
that such transaction constitutes a direct or
indirect . . . furnishing of goods, services, or facilities
between the plan and a party in interest.” 29 U.S.C.
§ 1106(a)(1)(C). A “party in interest” includes “a person
providing services to such plan.” Id. § 1002(14)(B). Thus,
the threshold question is whether AT&T, by amending its
12 BUGIELSKI V. AT&T SERVICES, INC.
contract with Fidelity to incorporate the services of
BrokerageLink and Financial Engines, “cause[d] the plan to
engage in a transaction” that constituted a “furnishing of
goods, services, or facilities between the plan and a party in
interest.” Id. § 1106(a)(1)(C).
There is no dispute that Fidelity has been AT&T’s
recordkeeper since 2005 and “provid[es] services to” the
Plan in that capacity. Id. § 1002(14)(B). Therefore, Fidelity
has been a “party in interest” since that time. Id.
Additionally, no one disputes that the transaction (the
amendment of the contract between AT&T and Fidelity)
constituted a “furnishing of . . . services.” Id.
§ 1106(a)(1)(C). Under the plain and unambiguous statutory
text, the contract amendment was a prohibited transaction
under § 406(a)(1)(C).
Indeed, AT&T admits that the language of
§ 406(a)(1)(C) is “broad” and, if read literally, encompasses
the transaction with Fidelity. AT&T argues, however, that
Congress “never intended” for § 406(a) to be “so broad” that
it would encompass “arm’s-length service transactions.”
But, in contrast to AT&T’s arguments based on Congress’s
purported intent, we have previously recognized § 406’s
“broad” scope, explaining that § 406 creates “a broad per se
prohibition of transactions ERISA implicitly defines as not
arm’s-length.” M & R Inv. Co. v. Fitzsimmons, 685 F.2d
283, 287 (9th Cir. 1982); see also Ronald J. Cooke, ERISA
Practice & Procedure § 6.49 (Dec. 2022 update) (“Since the
prohibition against transactions between plans and parties in
interest is per se in nature, a violation does not depend on
whether any harm results from the transaction.”).
Moreover, § 406(a)(1)(C) contains no language limiting
its application to non-arm’s-length transactions, and
BUGIELSKI V. AT&T SERVICES, INC. 13
accepting AT&T’s “statutory intent” argument would
undermine the scheme Congress enacted. Specifically,
§ 408(b)(2) broadly exempts from § 406’s bar transactions
for “services necessary for the establishment or operation of
the plan.” 29 U.S.C. § 1108(b)(2)(A). And the definition of
“necessary” is similarly broad: a service is necessary if it “is
appropriate and helpful to the plan obtaining the service in
carrying out the purposes for which the plan is established or
maintained.” 29 C.F.R. § 2550.408b-2(b). In other words,
ERISA already contains an exemption for those “service
transactions” that keep plans running smoothly, which are
the very transactions AT&T argues should be exempt. We
see no reason to fashion a judge-made exemption when
Congress has already provided a statutory exemption.
We are particularly reluctant to adopt an atextual
interpretation of § 406 because ERISA is “an enormously
complex and detailed statute,” Conkright v. Frommert, 559
U.S. 506, 509 (2010) (quoting Mertens v. Hewitt Assocs.,
508 U.S. 248, 262 (1993)), that is “the product of a decade
of congressional study of the Nation’s private employee
benefit system,” Mertens, 508 U.S. at 251. Indeed, because
of ERISA’s complex and carefully crafted nature, the
Supreme Court has “been especially ‘reluctant to tamper
with [the] enforcement scheme’ embodied in the statute by
extending remedies not specifically authorized by its text.”
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S.
204, 209 (2002) (alteration in original) (quoting Mass. Mut.
Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985)). Although
the Court made this observation in a different context, we
conclude that we should proceed in a similarly cautious
manner and decline to read additional limitations,
requirements, or exceptions into the statutory text.
14 BUGIELSKI V. AT&T SERVICES, INC.
B
The Department of Labor’s Employee Benefits Security
Administration’s (“EBSA”) explanation for amending the
regulation implementing § 408(b)(2) confirms our reading
of § 406. In pertinent part, that explanation provides:
The furnishing of goods, services, or
facilities between a plan and a party in
interest to the plan generally is prohibited
under section 406(a)(1)(C) of ERISA. As a
result, a service relationship between a plan
and a service provider would constitute a
prohibited transaction, because any person
providing services to the plan is defined by
ERISA to be a “party in interest” to the plan.
However, section 408(b)(2) of ERISA
exempts certain arrangements between plans
and service providers that otherwise would
be prohibited transactions under section 406
of ERISA.
Reasonable Contract or Arrangement Under Section
408(b)(2)—Fee Disclosure, 77 Fed. Reg. at 5632; see Kisor
v. Wilkie, 139 S. Ct. 2400, 2413 (2019) (“Want to know what
a rule means? Ask its author.”). In other words, the
explanation contemplates the sort of arm’s-length
transactions that AT&T argues § 406(a)(1)(C) was not
intended to reach, confirms that these transactions
“generally” are prohibited under § 406(a)(1)(C), and
reiterates the role of § 408(b)(2) and its implementing
regulation, 29 C.F.R. § 2550.408b-2, in providing relief
from § 406’s categorical bar of such transactions. Indeed,
Fidelity correctly noted as much when it told AT&T that
BUGIELSKI V. AT&T SERVICES, INC. 15
although it might be “surpris[ing]” that contracts between “a
plan and a service provider, like a recordkeeper, are
prohibited transactions,” plans are able to “routinely enter
into contracts with service providers” because of
§ 408(b)(2)’s exemption.
Furthermore, when explaining its reasons for amending
the regulation, EBSA provided an example of the application
of § 406 and § 408 that refutes AT&T’s argument that § 406
was not meant to reach the transaction in this case. After
explaining that the complexity of compensation
arrangements for retirement plan services required
regulatory action, the agency noted that “[p]ayments from
third parties and among service providers can create
conflicts of interest between service providers and their
clients.” Id. at 5650. By way of example, it explained that
there is a potential for conflicts when “a 401(k) plan vendor
may receive ‘revenue sharing’ from a mutual fund that it
makes available to its clients.” Id. That is precisely the
arrangement here between Fidelity and the mutual funds
available through BrokerageLink. EBSA clearly recognized
that such arrangements could lead to potential conflicts of
interest and, as a result, required disclosure under
§ 408(b)(2) prior to a fiduciary’s entry into this sort of
arrangement.
Finally, we are persuaded by the Department of Labor’s
advisory opinion that a company that “provide[d]
recordkeeping and related administrative services to
retirement plans” and made available to those plans “a
variety of investment options, including its own insurance
company separate accounts and affiliated and unaffiliated
mutual funds,” would be “a party in interest with respect to
16 BUGIELSKI V. AT&T SERVICES, INC.
the plan” because it was “a provider of services.”
3
U.S.
Dep’t of Labor, Opinion No. 2013-03A, 2013 WL 3546834,
at *1–2 (July 3, 2013). The opinion states that
§ 406(a)(1)(C) “generally prohibit[s]” the furnishing of
goods, services, or facilities between a plan and a party in
interest, unless the exemption in § 408(b)(2) applies. Id. at
*2. Because the situation described in the advisory opinion
is remarkably similar to this case, it reinforces our
conclusion that § 406(a)(1)(C) broadly applies to
transactions constituting a “furnishing of goods, services, or
facilities between the plan and a party in interest,” and a
party is a “party in interest” if it “provid[es] services to” a
plan. 29 U.S.C. §§ 1002(14)(B), 1106(a)(1)(C).
C
In contrast to the statutory and regulatory text, as well as
EBSA’s explanation of the revised regulation, AT&T relies
on three decisions to support its reading of § 406(a)(1)(C) as
excluding arm’s-length transactions from the statute’s
definition of prohibited transactions: Lockheed Corp. v.
Spink, 517 U.S. 882 (1996); Sweda v. University of
Pennsylvania, 923 F.3d 320 (3d Cir. 2019); and Albert v.
Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022). As set forth
below, we conclude that these cases either do not support
AT&T’s position, or we decline to follow their reasoning.
3
Agency interpretations “contained in formats such as opinion letters are
‘entitled to respect’” under Skidmore v. Swift & Co., 323 U.S. 134, 140
(1944), to the extent that they “have the ‘power to persuade.’”
Christensen v. Harris County, 529 U.S. 576, 587 (2000) (quoting
Skidmore, 323 U.S. at 140).
BUGIELSKI V. AT&T SERVICES, INC. 17
1
The first case AT&T relies upon is Lockheed Corp. v.
Spink, in which an employer amended its defined benefit
plan to offer increased pension benefits, payable out of the
plan’s surplus assets, to employees who would retire early,
under the condition that participants release any
employment-related claims against the employer. 517 U.S.
at 885. The plaintiff alleged that this payment of benefits
was a prohibited transaction under § 406(a)(1)(D), which
prohibits a fiduciary from causing a plan to engage in a
transaction that constitutes a “transfer to, or use by or for the
benefit of a party in interest, of any assets in the plan.” Id.
at 886, 892 (quoting 29 U.S.C. § 1106(a)(1)(D)). The
plaintiff theorized that the release of employment-related
claims by participants was a significant “benefit” for the
employer under § 406(a)(1)(D). Id. at 893.
The Court rejected this theory, holding that “the payment
of benefits pursuant to an amended plan, regardless of what
the plan requires of the employee in return for those benefits,
does not constitute a prohibited transaction.” Id. at 895. The
Court first recognized that § 406(a)(1)(D) “does not in direct
terms include the payment of benefits by a plan
administrator.” Id. at 892; see also id. at 894 (“Section
406(a)(1)(D) simply does not address what an employer can
and cannot ask an employee to do in return for benefits.”).
The Court then looked to “the surrounding provisions” of
§ 406 to determine whether the payment of benefits was a
“‘transaction’ in the sense that Congress used that term in
§ 406(a).” Id. at 892–93. The Court concluded it was not,
noting that § 406(a) involves “commercial bargains that
present a special risk of plan underfunding because they are
struck with plan insiders, presumably not at arm’s length.”
Id. at 893. The common thread among the transactions in
18 BUGIELSKI V. AT&T SERVICES, INC.
§ 406(a), the Court continued, “is that they generally involve
uses of plan assets that are potentially harmful to the plan,”
whereas the “payment of benefits conditioned on
performance by plan participants cannot reasonably be said
to share that characteristic.” Id.
The Court then considered the plaintiff’s concession that
there were “incidental” and therefore “legitimate” benefits
that a plan sponsor might also receive from operating a
pension plan, such as attracting and retaining employees or
providing increased compensation without increasing
wages. Id. The Court explained that it could not see “how
obtaining waivers of employment-related claims” could
“meaningfully be distinguished” from these other objectives
the plaintiff admitted were permissible. Id. at 894. Thus, the
Court concluded that there was “no basis in § 406(a)(1)(D)
for distinguishing a valid from an invalid quid pro quo.” Id.;
see also id. at 895 (“When § 406(a)(1)(D) is read in the
context of the other prohibited transaction provisions, it
becomes clear that the payment of benefits in exchange for
the performance of some condition by the employee is not a
‘transaction’ within the meaning of § 406(a)(1).”).
AT&T relies on Lockheed’s statement that § 406 bars
transactions “likely to injure the pension plan,” id. at 888
(quoting Comm’r v. Keystone Consol. Indus., Inc., 508 U.S.
152, 160 (1993)), to support its argument that § 406(a)(1)(C)
was not meant to prohibit “the type of ubiquitous, arm’s-
length service transactions involved here.” For several
reasons, we disagree.
First, and most importantly, the text of § 406(a)(1)(D)
did not support the Lockheed plaintiff’s argument. The
Court began its analysis with the statutory text and
concluded that the text “does not in direct terms” include
BUGIELSKI V. AT&T SERVICES, INC. 19
“the payment of benefits” and “simply does not address what
an employer can and cannot ask an employee to do in return
for benefits.” Id. at 892, 984. In contrast, § 406(a)(1)(C)
does, “in direct terms,” encompass the transactions here.
There is no dispute that AT&T “cause[d] the plan to engage
in a transaction” involving the “furnishing of . . . services”
between “the plan and a party in interest.” 29 U.S.C.
§ 1106(a)(1)(C). And since it decided Lockheed, the Court
has reiterated that courts “‘must enforce plain and
unambiguous statutory language’ in ERISA, as in any
statute, ‘according to its terms.’” Intel Corp. Inv. Pol’y
Comm. v. Sulyma, 140 S. Ct. 768, 776 (2020) (quoting Hardt
v. Reliance Standard Life Ins. Co., 560 U.S. 242, 251
(2010)). Our approach does just that.
Second, no other authority supported the Lockheed
plaintiff’s argument. To the contrary, the Court observed
that federal law “expressly approve[d]” the employer’s
strategy, and the Court noted its reluctance “to infer that
ERISA bars conduct affirmatively sanctioned by other
federal statutes” in the absence of “clearer indication than
what [the Court had] in § 406(a)(1)(D).” Lockheed Corp.,
517 U.S. at 895 n.6. But here, AT&T identifies no
equivalent law supporting its position, while Plaintiffs’
position is reinforced by EBSA’s explanation of the
amendments to 29 C.F.R. § 2550.408b-2.
Third, the Court considered the “surrounding
provisions” of § 406 and observed that the transactions
identified in § 406 “generally involve uses of plan assets that
are potentially harmful to the plan.” Id. at 892–93. And
while we are mindful that “the words of a statute must be
read in their context and with a view to their place in the
overall statutory scheme,” Davis v. Mich. Dep’t of Treasury,
489 U.S. 803, 809 (1989)); see also Lockheed Corp., 517
20 BUGIELSKI V. AT&T SERVICES, INC.
U.S. at 895, we do not read this general statement as limiting
§ 406’s scope or requiring that a transaction be harmful to be
prohibited. Rather, this “general[]” observation explains
why it made sense that the “direct terms” of the statute did
not encompass the payment of benefits as a prohibited
transaction. Lockheed Corp., 517 U.S. at 892. The Court’s
analysis would have differed if the “direct terms” of § 406
had encompassed the transaction, id., or if the “statutory
scheme” had supported the plaintiff’s argument, Davis, 489
U.S. at 809, as § 408(b)(2) and its implementing regulation
do here. In short, our analysis is faithful to the Court’s
holding in Lockheed. Because the “direct terms” of
§ 406(a)(1)(C) encompass the transaction here, AT&T’s
contextual argument cannot create an exception to
§ 406(a)(1)(C) where one does not exist. See Sulyma, 140
S. Ct. at 777–78 (rejecting contextual argument because
“that is simply not what [the statute at issue] says”).
Fourth, while the payment of benefits in Lockheed could
not “reasonably be said” to be “potentially harmful to the
plan,” 517 U.S. at 893, the transactions here have the
potential to be harmful. Participants paid additional fees to
use BrokerageLink and Financial Engines. In a defined
contribution plan, like the Plan here, “participants’
retirement benefits are limited to the value of their own
individual investment accounts, which is determined by the
market performance of employee and employer
contributions, less expenses. Expenses, such as
management or administrative fees, can sometimes
significantly reduce the value of an account in a defined-
contribution plan.” Tibble v. Edison Int’l, 575 U.S. 523, 526
(2015). Therefore, if AT&T entered into bad deals—as
Plaintiffs hypothesize—those fees could “significantly
reduce” participants’ assets. Id. Put differently, Lockheed
BUGIELSKI V. AT&T SERVICES, INC. 21
does not support AT&T’s arguments because there is a
fundamental difference between paying increased pension
benefits to employees and authorizing transactions that
generate millions of dollars for a party in interest. The text
of § 406 recognizes this distinction. Compare Lockheed
Corp., 517 U.S. at 892 (stating that § 406(a)(1)(d) “does not
in direct terms include the payment of benefits” as a
prohibited transaction) with 29 U.S.C. § 1106(a)(1)(c)
(explicitly prohibiting the “furnishing of . . . services”
between a plan and a party in interest).
Finally, the Court’s analysis in Lockheed emphasized the
difficulty in distinguishing between those “benefits” the
plaintiff conceded were proper under § 406(a)(1)(D) and
those that were not. 517 U.S. at 894–95. There is no
equivalent line-drawing concern here. To the contrary,
adopting AT&T’s position would implicate such a concern;
a “standard that allows some [transactions with parties in
interest] but not others, as [AT&T] suggests, lacks a basis”
in § 406(a)(1)(C)’s categorical bar. Id. at 895.
For all these reasons, we do not believe Lockheed
justifies a judicial override of § 406(a)(1)(C)’s unambiguous
text.
2
We also find unpersuasive the Third Circuit’s decision
in Sweda v. University of Pennsylvania, which AT&T urges
us to follow. In Sweda, the Third Circuit affirmed the
dismissal of various claims alleging that the fiduciaries of
the University of Pennsylvania’s retirement plan entered into
agreements with the plan’s recordkeepers that constituted
prohibited transactions. 923 F.3d at 324. The court found
that the plaintiffs plausibly alleged that the recordkeepers—
the equivalent of Fidelity here—were “parties in interest”
22 BUGIELSKI V. AT&T SERVICES, INC.
because they provided services to the plan. Id. at 339; see
29 U.S.C. § 1002(14)(B). And the court recognized that “it
is possible to read [§ 406(a)(1)(C)] to create a per se
prohibited transaction rule forbidding service arrangements
between a plan and a party rendering services to the plan.”
Sweda, 923 F.3d at 339–40. Nevertheless, the court
“declined” to follow that reading of § 406(a)(1)(C), and
instead established a requirement that a plaintiff plead
“factual allegations that support an element of intent to
benefit a party in interest” to state a prohibited-transaction
claim. Id. at 336, 338.
The court reasoned that because § 406(a)(1) was
“designed to prevent ‘transactions deemed likely to injure
the . . . plan’ and ‘self-dealing,’” it seemed “improbable”
that § 406(a)(1)(C) “would prohibit ubiquitous service
transactions and require a fiduciary to plead reasonableness
as an affirmative defense.” Id. at 336 (alteration in original)
(quoting Nat’l Sec. Sys., Inc. v. Iola, 700 F.3d 65, 92 (3d Cir.
2012)). The court also reasoned that reading § 406(a)(1) “as
a per se rule” would “miss the balance that Congress struck
in ERISA” by “expos[ing] fiduciaries to liability for every
transaction whereby services are rendered to the plan.” Id.
at 337. Finally, the court noted that § 404(a)(1)(A)(ii)
“specifically acknowledges that certain services are
necessary to administer plans,” so interpreting § 406(a)(1)
“to prohibit necessary services would be absurd.” Id. at 337.
We disagree with this approach, which does not follow
the statutory text. The Supreme Court has reiterated that “a
reviewing court’s ‘task is to apply the text [of the statute],
not to improve upon it.’” EPA v. EME Homer City
Generation, L.P., 572 U.S. 489, 508–09 (2014) (alteration in
original) (quoting Pavelic & LeFlore v. Marvel Ent. Grp.,
493 U.S. 120, 126 (1989)). Despite recognizing that each
BUGIELSKI V. AT&T SERVICES, INC. 23
recordkeeper was a “party in interest” and that the
transaction at issue fit within the terms of § 406(a)(1)(C), the
Third Circuit “decline[d]” to apply the text of § 406, opting
instead to create an intent requirement that the statute does
not demand. Sweda, 923 F.3d at 336–37, 339. We believe
our reading is more faithful to the text of § 406(a)(1)(C),
which does not include any intent requirement. See, e.g.,
Lauderdale v. NFP Retirement, Inc., No. SACV 21-301 JVS
(KESx), 2022 WL 422831, at *20 (C.D. Cal. Feb. 8, 2022)
(stating, while referencing Sweda, that the court was “not
inclined to impose an intent requirement that is not in the
text of the statute”).
Additionally, while the court noted that it seemed
“improbable” that Congress intended to prohibit “ubiquitous
service transactions,” Sweda, 923 F.3d at 336, it did not
consider EBSA’s reasoning for amending § 408(b)(2)’s
implementing regulation, which contemplates these very
service transactions and confirms they are prohibited under
§ 406. See Reasonable Contract or Arrangement Under
Section 408(b)(2)—Fee Disclosure, 77 Fed. Reg. at 5632
(“[A] service relationship between a plan and a service
provider would constitute a prohibited transaction, because
any person providing services to the plan is defined by
ERISA to be a ‘party in interest’ to the plan.”).
Moreover, in refusing to adopt “a per se rule,” Sweda,
923 F.3d at 337, the court overlooked that the Supreme Court
had already recognized that § 406 creates a per se rule.
Harris Tr. & Sav. Bank, 530 U.S. at 241–42 (“Congress
enacted ERISA § 406(a)(1), which supplements the
fiduciary’s general duty of loyalty to the plan’s beneficiaries,
§ 404(a), by categorically barring certain transactions
deemed ‘likely to injure the pension plan.’” (emphasis
added) (citation omitted)); see also id. at 252 (noting that
24 BUGIELSKI V. AT&T SERVICES, INC.
§ 406(a) creates “per se prohibitions on transacting with a
party in interest”).
And even assuming § 408(b)(2) “require[s] a fiduciary
to plead reasonableness as an affirmative defense,” Sweda,
923 F.3d at 336, the concern “that putting employers to the
work of persuading factfinders that their choices are
reasonable makes it harder and costlier to defend . . . ha[s] to
be directed at Congress, which set the balance where it is,”
Meacham v. Knolls Atomic Power Lab’y, 554 U.S. 84, 101–
02 (2008). Congress has already set the balance here.
Finally, we disagree with the Third Circuit’s reasoning
that because § 404(a)(1)(A)(ii) “specifically acknowledges
that certain services are necessary to administer plans,”
interpreting § 406(a)(1)(C) “to prohibit necessary services
would be absurd.” Sweda, 923 F.3d at 337. As an initial
matter, we know that Congress recognized that
§ 406(a)(1)(C) would prohibit necessary services; that is
why it created an exemption. See 29 U.S.C. § 1108(b)(2)(A)
(exempting contracts for “services necessary for the
establishment or operation of the plan”).
Moreover, while § 404(a)(1)(A)(ii) “acknowledges that
certain services are necessary to administer plans,” there are
several reasons why it does not follow that it would be
“absurd” for § 406 to prohibit necessary services. Sweda,
923 F.3d at 337. First, § 406(a)(1)(C) only applies to service
contracts with a “party in interest,” and therefore it poses no
bar to contracts with parties that do not meet that definition.
29 U.S.C. § 1106(a)(1)(C). Second, even if a party in
interest were the sole provider of a necessary service,
§ 406(a)(1)(C) does not completely “prohibit necessary
services” or “impede necessary service transactions.”
Sweda, 923 F.3d at 337–38. Instead, it simply ensures that,
BUGIELSKI V. AT&T SERVICES, INC. 25
when transacting with a party in interest, a fiduciary
understands the compensation the party in interest will
receive from the transaction and determines that
compensation is reasonable. See 29 C.F.R. § 2550.408b-
2(a), (c), (d). This reading is consistent with ERISA’s
broader aim to protect plan participants, as well as §§ 406
and 408’s aim to increase transparency around service
providers’ compensation and potential conflicts of interest.
See 29 U.S.C. § 1001; Reasonable Contract or Arrangement
Under Section 408(b)(2)—Fee Disclosure, 77 Fed. Reg. at
5632.
3
AT&T’s reliance on Albert v. Oshkosh Corp. fares no
better. In Oshkosh, the Seventh Circuit rejected the
plaintiff’s argument that “paying excessive fees” to the
plan’s recordkeeper and investment advisor “for Plan
services” amounted to a prohibited transaction. 47 F.4th at
575–76, 584. The court acknowledged that “[u]nder a literal
reading” of § 406(a)(1)(C) and the definition of “party in
interest,” ERISA “would prohibit payments by a plan to an
entity providing services for the plan.” Id. at 584. The court
then cited Sweda, among other cases, as support that courts
“have declined to read ERISA that way because it would
prohibit fiduciaries from paying third parties to perform
essential services in support of a plan.” Id. Concluding that
the transactions were prohibited would be “inconsistent with
the purpose of the statute,” the court reasoned, because it
would be “nonsensical” to read § 406(a)(1) “to prohibit
transactions for services that are essential for defined
contribution plans, such as recordkeeping and administrative
services.” Id. at 584–85.
26 BUGIELSKI V. AT&T SERVICES, INC.
The court distinguished past precedent that did not
“confront the circularity problem” present in § 406 because
“the transactions at issue [in that case] did not transform the
defendants into parties in interest.” Id. at 585. Ultimately,
the court concluded that prohibiting “routine payments by
plan fiduciaries to third parties in exchange for plan
services” would put plan participants in “a worse position”
because plans could no longer “outsource tasks like
recordkeeping, investment management, or investment
advising.” Id. at 585–86.
The nature of the “transaction” in Oshkosh is not entirely
clear from the opinion. But considering the court’s
discussion of a “circularity problem,” it appears the
“transaction” was simply payment for the services that
rendered the service provider a “party in interest” in the first
place. Id. at 583–85.
4
In other words, the plaintiff argued
that the recordkeeper became a “party in interest” by
4
This understanding of the transaction at issue is further supported by
the district court’s decision and the plaintiff’s allegations and briefing.
See Albert v. Oshkosh Corp., No. 20-C-901, 2021 WL 3932029, at *8
(E.D. Wisc. Sept. 2, 2021) (rejecting as “circular reasoning” the
argument that “an entity which becomes a party in interest by providing
services to the Plans has engaged in a prohibited transaction simply
because the Plans have paid for those services” and concluding that
allegations that the employer paid the service providers “excessive fees
for their services, without more, do not state a prohibited transaction
claim” (quotation omitted)); Brief for Appellant Andrew Albert at 45,
Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022) (No. 21-2789),
ECF No. 27 (arguing that because the employer “paid fees to [the service
providers] with plan assets” and § 408(b)(2)’s exemption is an
affirmative defense, the prohibited-transaction claim survives a motion
to dismiss); Amended Complaint at 64–66, Albert v. Oshkosh Corp.,
2021 WL 3932029 (E.D. Wisc. Sept. 2, 2021) (No. 1:20-cv-00901-
WCG), ECF No. 20 (alleging that the plan engaged in a prohibited
transaction by “using assets of the Plan to pay” for “unreasonable” fees).
BUGIELSKI V. AT&T SERVICES, INC. 27
providing recordkeeping services to the plan, and the
payment for those services amounted to a prohibited
transaction. See id. at 584 (“Subsections (A) through (D) [of
§ 406] cannot be read to categorically prohibit the very
transactions that cause a person to obtain the status of a party
in interest.” (quoting Sellers v. Anthem Life Ins. Co., 316 F.
Supp. 3d 25, 34 (D.D.C. 2018)).
That was not the situation here, where Fidelity was a
longstanding party in interest when AT&T amended its
contract to incorporate additional services from new
vendors, resulting in millions of dollars in compensation for
Fidelity. To the extent the court in Oshkosh premised its
decision on a situation inapposite from the one here, we find
it unpersuasive.
To the extent the court was considering a situation
similar to the one presented here, we simply disagree with
its analysis. As in Sweda, the court in Oshkosh recognized
that “a literal reading” of § 406(a)(1)(C) led to the
conclusion that the transaction was prohibited, yet it
concluded such a reading was “nonsensical.” Id. at 584–85.
And like the court in Sweda, it did not consider EBSA’s
explanation of its amendment of § 408(b)(2)’s implementing
regulation; if the court had, it likely would have concluded
that the “literal reading” is correct. See Reasonable Contract
or Arrangement Under Section 408(b)(2)—Fee Disclosure,
77 Fed. Reg. at 5632 (“The furnishing
of . . . services . . . between a plan and a party in interest to
the plan generally is prohibited under section 406(a)(1)(C)
of ERISA.”). We are hard-pressed to find the best reading
of the statutory text, as corroborated by the agency tasked
with administering the relevant regulations, “nonsensical.”
28 BUGIELSKI V. AT&T SERVICES, INC.
Finally, the court’s suggestion in Oshkosh that § 406
would prevent plans from outsourcing recordkeeping and
investment services also misses the mark. 47 F.4th at 585–
86. Section 406(a)(1)(C) is not a complete ban; instead, it
requires fiduciaries, before entering into an agreement with
a party in interest, to understand the compensation the party
in interest will receive, evaluate whether the arrangement
could give rise to any conflicts of interest, and determine
whether the compensation is reasonable. 29 C.F.R.
§ 2550.408b-2; see generally Reasonable Contract or
Arrangement Under Section 408(b)(2)—Fee Disclosure, 77
Fed. Reg. 5632-01. Rather than frustrating “ERISA’s
statutory purpose,” Oshkosh, 47 F.4th at 585, this scheme
furthers it by ensuring fiduciaries understand the impact the
transaction will have on participants’ interests. See 29
U.S.C. § 1001.
* * * *
In sum, AT&T’s arguments based on these cases cannot
overcome the clear command of ERISA’s text, as reinforced
by the regulation implementing § 408(b)(2) and EBSA’s
explanation for its amendment. Because amending
Fidelity’s contract constituted a prohibited transaction under
§ 406(a)(1)(C), we next consider whether the requirements
for an exemption under § 408(b)(2) were satisfied.
IV
Section 408(b)(2) provides relief from the prohibited-
transaction bar for service contracts or arrangements
between a plan and a party in interest if (1) the contract or
arrangement is “reasonable,” (2) the services are “necessary
for the establishment or operation of the plan,” and (3) no
more than “reasonable compensation is paid” for the
services. 29 U.S.C. § 1108(b)(2); 29 C.F.R. § 2550.408b-
BUGIELSKI V. AT&T SERVICES, INC. 29
2(a). Only the first and third requirements are at issue here,
as Plaintiffs agree that the services were “necessary.” See
29 C.F.R. § 2550.408b-2(b).
A
Under § 408(b)(2)’s first requirement, for the contract or
arrangement to be “reasonable,” the party in interest (which
must be a covered service provider and provide services to a
covered plan, 29 C.F.R. § 2550.408b-2(c)) must disclose to
the plan’s fiduciary detailed information about all
compensation the party expects to receive “in connection
with” the services provided pursuant to the contract or
arrangement. 29 C.F.R. § 2550.408b-2(c)(1)(iv). Among
other things, this includes (1) a description of all “direct
compensation” the party expects to receive, and (2) a
description of all “indirect compensation” the party expects
to receive, including “identification of the services for which
the indirect compensation will be received, identification of
the payer of the indirect compensation, and a description of
the arrangement between the payer and the [party in
interest] . . . pursuant to which such indirect compensation is
paid.”
5
Id. § 2550.408b-2(c)(1)(iv)(C)(1)–(2).
We need not address this requirement, however, because
we conclude that remand is necessary for the district court to
consider § 408(b)(2)’s third requirement: whether Fidelity
received no more than “reasonable compensation” from all
sources for the services it provided the Plan.
5
“Direct” compensation is compensation “received directly from the
covered plan,” such as the recordkeeping fees AT&T paid Fidelity. 29
C.F.R. § 2550.408b-2(c)(1)(viii)(B)(1). “Indirect” compensation
includes “compensation received from any source other than the covered
plan.” Id. § 2550.408b-2(c)(1)(viii)(B)(2).
30 BUGIELSKI V. AT&T SERVICES, INC.
B
The parties dispute the meaning of “reasonable
compensation” under the third requirement. Id.
§ 2550.408b-2(a)(3). AT&T asserts that “reasonable
compensation” encompasses only the compensation Fidelity
received directly from the Plan and its participants for
recordkeeping, while Plaintiffs argue that the reasonableness
of the compensation also includes the compensation Fidelity
received from Financial Engines and BrokerageLink. The
district court adopted AT&T’s position, concluding that
AT&T “had no duty to investigate or consider the third-party
compensation Fidelity was receiving from Financial Engines
and/or BrokerageLink, and therefore [its] failure to do so
does not make [the] compensation agreement unreasonable.”
The district court, relying on Marshall v. Northrop
Grumman Corp., had already concluded that AT&T had no
duty to consider this compensation in its analysis of the duty-
of-prudence claim. 2019 WL 4058583, at *11. The court
applied this reasoning to the prohibited-transaction claim
and analyzed whether Fidelity’s recordkeeping expenses
alone were reasonable.
Although Marshall is not binding on us, AT&T urges us
to adopt its reasoning, as the district court did. The plaintiffs
in Marshall argued that the fiduciary breached its duty of
prudence under § 404 by failing to monitor the
compensation the recordkeeper received from the plan’s
investment advice provider, Financial Engines.
6
Id. at *4,
6
Marshall involved two different types of fees: “[d]ata connectivity
fees,” which Financial Engines paid the recordkeeper in exchange for
receiving “up-to-date participant data in a timely manner and format” so
BUGIELSKI V. AT&T SERVICES, INC. 31
11. The district court rejected this argument, stating that
“ERISA does not require, as a matter of law,” that fiduciaries
monitor “the type of third-party fees at issue here” because
those fees “are not subject to fiduciary control, the fees are
not paid out of plan assets, and [the fees] are for services [the
recordkeeper] provides to Financial Engines out of an
independent business arrangement.” Id. at *11.
But this conclusion is refuted by EBSA’s explanation of
its amendments to § 408(b)(2)’s implementing regulation—
which the Marshall court did not consider, as the plaintiffs
brought their claim under § 404. See id. at *10–11. EBSA
stated explicitly that the information the party in interest
must disclose to the fiduciary about the compensation it
expects to receive “in connection with” the services provided
“will assist plan fiduciaries in understanding the services and
in assessing the reasonableness of the compensation, direct
and indirect, that the [party in interest] will receive.”
Reasonable Contract or Arrangement Under Section
408(b)(2)—Fee Disclosure, 77 Fed. Reg. at 5635–36
(emphasis added). Put differently, the regulation
contemplates that the fiduciary will assess the
reasonableness of the compensation that the party receives
“directly from the covered plan,” 29 C.F.R. § 2550.408b-
2(c)(1)(viii)(B)(1) (defining “direct compensation”), and
“from any source other than the covered plan,” id.
§ 2550.408b-2(c)(1)(viii)(B)(2) (defining “indirect
compensation”).
it could provide participants with investment advice, and fees from a
“Master Service Agreement,” under which the recordkeeper “agreed to
provide data connectivity services and other services to enable Financial
Engines to pursue sales opportunities within [the recordkeeper’s]
existing and potential client base.” 2019 WL 4058583, at *5, 11.
32 BUGIELSKI V. AT&T SERVICES, INC.
In amending § 2550.408b-2, EBSA explained that, when
“evaluating the reasonableness” of the contract for services,
“responsible plan fiduciaries have a duty to consider
compensation that will be received by a [party in interest]
from all sources in connection with the services it provides
to a covered plan pursuant to the [party in interest’s] contract
or arrangement.” Reasonable Contract or Arrangement
Under Section 408(b)(2)—Fee Disclosure, 77 Fed. Reg. at
5650 (emphasis added). EBSA further explained that the
phrase “in connection with” should “be construed broadly”
to encompass compensation the party receives “based in
whole or in part” on its contract with the plan. Id. at 5637.
Therefore, to the extent Marshall found that fiduciaries do
not have a duty to consider “third-party fees,” 2019 WL
4058583, at *11, it conflicts with the agency’s purpose in
amending § 408’s implementing regulation, and we reject its
reasoning.
Rather, to determine whether “no more than reasonable
compensation is paid” for services under § 408(b)(2)’s
exemption, 29 C.F.R. § 2550.408b-2(a)(3), a fiduciary must
consider all compensation—direct and indirect—that the
party in interest receives “in connection with” the services it
provides to the plan under the contract. See Reasonable
Contract or Arrangement Under Section 408(b)(2)—Fee
Disclosure, 77 Fed. Reg. at 5650 (“In evaluating the
reasonableness of contracts or arrangements for services,
responsible plan fiduciaries have a duty to consider
compensation that will be received by a covered service
provider from all sources in connection with the services it
provides to a covered plan pursuant to the service provider’s
contract or arrangement.”).
This conclusion—that the fiduciary must consider all
compensation the party in interest receives in connection
BUGIELSKI V. AT&T SERVICES, INC. 33
with the services it provides the plan—is required by the text
of the regulation, conforms to the structure and purpose of
§ 408(b)(2)’s requirements, and is reinforced by EBSA’s
explanation for revising § 2550.408b-2. The first exemption
requirement—that the contract or arrangement be
“reasonable”—calls for the party in interest to disclose
information to the fiduciary about the compensation the
party in interest expects to receive in connection with the
services provided under the contract with the plan. 29 C.F.R.
§ 2550.408b-2(c)(1)(iv). The third requirement—that “no
more than reasonable compensation is paid”—expects a
fiduciary to consider this information. As EBSA explained,
the point of disclosure is to provide information from which
the fiduciary can make responsible decisions for the plan.
Reasonable Contract or Arrangement Under Section
408(b)(2)—Fee Disclosure, 77 Fed. Reg. at 5634, 5635–36
(stating that the disclosure requirements “should be
construed broadly to ensure that responsible plan fiduciaries
base their review of a service contract or arrangement on
comprehensive information,” and that the disclosed
information “will assist plan fiduciaries in understanding the
services and in assessing the reasonableness of the
compensation” the party will receive). Disclosure is
pointless if the fiduciary has no obligation to consider the
disclosed information.
Moreover, one of the primary purposes of amending
§ 408(b)(2)’s implementing regulation was to address
“third-party fees,” which the court in Marshall found
fiduciaries need not consider. 2019 WL 4058583, at *11.
EBSA was particularly concerned with the special risks
presented by these fees. It recognized that “[p]ayments from
third parties and among service providers can create
conflicts of interest between service providers and their
34 BUGIELSKI V. AT&T SERVICES, INC.
clients,” and these payments have “been largely hidden from
view,” thereby preventing fiduciaries “from assessing the
reasonableness of the costs for plan services.” Reasonable
Contract or Arrangement Under Section 408(b)(2)—Fee
Disclosure, 77 Fed. Reg. at 5650.
EBSA therefore implemented the regulation to
“improve . . . transparency” and make it easier for
fiduciaries to satisfy their “duty to consider compensation
that will be received by a [party in interest] from all sources
in connection with the services it provides to a covered plan”
under the contract. Id. (outlining these risks in section titled
“The Need for Regulatory Action”). The purpose of the
regulation is clear—indeed, Fidelity even informed AT&T
that “the regulation is focused on the disclosure of indirect
revenue.”
In short, to determine whether “no more than reasonable
compensation is paid” for a party in interest’s services,
EBSA envisioned that a fiduciary would consider the
compensation received by the party “from all sources in
connection with the services it provides to a covered plan
pursuant to” the contract, not just the compensation the party
receives directly from a plan. See Reasonable Contract or
Arrangement Under Section 408(b)(2)—Fee Disclosure, 77
Fed. Reg. at 5650.
Here, that means AT&T needed to consider the
compensation Fidelity received from Financial Engines and
BrokerageLink when determining whether “no more than
reasonable compensation” was paid for Fidelity’s services.
29 C.F.R. § 2550.408b-2(a)(3). The district court did not
engage in this analysis; it concluded that AT&T “had no
duty” to consider this compensation and evaluated whether
the recordkeeping expenses the Plan paid directly to Fidelity,
BUGIELSKI V. AT&T SERVICES, INC. 35
alone, were reasonable. We therefore remand for the district
court to conduct this analysis in the first instance.
V
For similar reasons, we also reverse the district court’s
judgment in favor of AT&T on Plaintiffs’ duty-of-prudence
claim and remand for further proceedings. Plaintiffs assert
that AT&T breached its duty of prudence under ERISA
§ 404 by failing to monitor the compensation Fidelity
received through BrokerageLink and Financial Engines. See
29 U.S.C. § 1104(a)(1) (requiring a fiduciary to discharge
his or her duties “with the care, skill, prudence, and diligence
under the circumstances then prevailing” and for the
“exclusive purpose” of “providing benefits to participants”
and “defraying reasonable expenses of administering the
plan”).
AT&T again relies on Marshall as support for its
argument that a fiduciary need not consider this
compensation, and again this reliance is misplaced. As our
prior discussion of Plaintiffs’ § 406 prohibited-transaction
claim demonstrates, AT&T was required to consider this
compensation under §§ 406 and 408. Moreover, EBSA’s
explanation of the amendments to 29 C.F.R. § 2550.408b-2
explicitly envisions that fiduciaries will consider such
compensation to satisfy their duty of prudence under
§ 404—directly refuting Marshall.
When amending § 2550.408b-2, EBSA explained that
fiduciaries must have information about the compensation—
direct and indirect—received by service providers like
Fidelity “to satisfy their fiduciary obligations under ERISA
[§] 404(a)(1) to act prudently.” Reasonable Contract or
Arrangement Under Section 408(b)(2)—Fee Disclosure, 77
Fed. Reg. at 5632. These disclosures are necessary because
36 BUGIELSKI V. AT&T SERVICES, INC.
the duty of prudence requires a fiduciary to discharge his or
her duties “solely in the interest of [plan] participants and
beneficiaries” and for the purpose of “defraying reasonable
expenses of administering” the plan. 29 U.S.C.
§ 1104(a)(1)(A)(ii). A fiduciary cannot do so, however, if
he or she is unaware of how and to what extent a service
provider is compensated. See Reasonable Contract or
Arrangement Under Section 408(b)(2)—Fee Disclosure, 77
Fed. Reg. at 5632 (stating that § 408(b)(2) requires service
providers to disclose all compensation they receive in
connection with a plan because “plan fiduciaries need this
information, when selecting and monitoring service
providers,” to be able to “assess[] the reasonableness of the
compensation paid for services and the conflicts of interest
that may affect a service provider’s performance of services”
and satisfy their duty of prudence).
Indeed, EBSA amended § 408(b)(2)’s implementing
regulation to better allow fiduciaries to fulfill their
responsibilities. EBSA recognized that “the way services
are provided to employee benefit plans and . . . the way
service providers are compensated” had changed, making “it
more difficult for plan sponsors and fiduciaries to understand
what service providers actually are paid for the specific
services rendered”—as “[§] 404(a)(1) of ERISA requires
plan fiduciaries” to do. Reasonable Contract or
Arrangement Under Section 408(b)(2)—Fee Disclosure, 75
Fed. Reg. 41600-01, 41600 (July 16, 2010) (interim rule);
see also Reasonable Contract or Arrangement Under Section
408(b)(2)—Fee Disclosure, 77 Fed. Reg. at 5637–38 (final
rule) (explaining how the final rule’s disclosure
requirements better enable “a responsible plan fiduciary” to
understand “what compensation will be received and from
BUGIELSKI V. AT&T SERVICES, INC. 37
whom” so he or she can “make informed decisions about
service costs and potential conflicts of interest”).
AT&T counters that the duty-of-prudence claim must
fail because Plaintiffs offered no expert testimony to
establish that a prudent fiduciary would have considered the
fees Fidelity received from BrokerageLink and Financial
Engines. However, AT&T identifies no Ninth Circuit
precedent suggesting that expert testimony is a prerequisite
to a successful claim, and we decline to create a per se rule
requiring such evidence. See Hughes v. Northwestern Univ.,
142 S. Ct. 737, 742 (2022) (“Because the content of the duty
of prudence turns on ‘the circumstances . . . prevailing’ at
the time the fiduciary acts, § 1104(a)(1)(B), the appropriate
inquiry will necessarily be context specific.” (quoting Fifth
Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014)).
Similarly, we cannot conclude that AT&T, in fact,
considered these fees. AT&T does not even attempt to argue
that it considered the compensation Fidelity received from
the mutual funds available through BrokerageLink. And to
support its argument that it considered the compensation
Fidelity received from Financial Engines, AT&T cites
testimony from an AT&T executive that he “took note of”
that compensation and took it “into account.” But another
AT&T executive testified that “what Financial Engines and
Fidelity worked out for fees, was between them,” while
another echoed that sentiment and suggested that AT&T
“really didn’t make an inquiry about whether [the fee paid
by Financial Engines to Fidelity] was a reasonable” one. On
balance, this conflicting testimony does not support AT&T’s
claim that it considered the compensation Fidelity received
from Financial Engines.
38 BUGIELSKI V. AT&T SERVICES, INC.
On this record, we cannot conclude that AT&T satisfied
its duty of prudence as a matter of law. We therefore remand
for the district court to consider Plaintiffs’ duty-of-prudence
claim under the proper framework in the first instance. See
Nunez v. Duncan, 591 F.3d 1217, 1222–23 (9th Cir. 2010)
(in reviewing a district court’s grant of summary judgment,
we determine “whether there are any genuine issues of
material fact and whether the district court correctly applied
the relevant substantive law” (quoting Devereaux v. Abbey,
263 F.3d 1070, 1074 (9th Cir. 2001) (en banc)).
VI
Finally, we turn to Plaintiffs’ reporting claim. Plaintiffs
argue that AT&T breached its “duty of candor” by failing to
accurately report on its Form 5500s the indirect
compensation Fidelity received from Financial Engines and
BrokerageLink. See 29 U.S.C. § 1023(c)(3). Plaintiffs seek
injunctive relief requiring AT&T to correct the Form 5500s.
The Form 5500 requires plan administrators to identify
service providers, like Fidelity, that receive a certain amount
of compensation in connection with services rendered to the
plan. U.S. Dep’t of Labor, Emp. Benefits Sec. Admin.,
Schedule C (Form 5500), at 1. Administrators generally
must report the direct and indirect compensation that the
service provider received. See id. at 3. However, if the
indirect compensation qualifies as “eligible indirect
compensation” and was adequately disclosed to the plan, an
alternative reporting method is available. Id. Under those
circumstances, the administrator can check a box on the
Form 5500 indicating that the service provider received
eligible indirect compensation without reporting the amount.
Id.
BUGIELSKI V. AT&T SERVICES, INC. 39
AT&T contends that it properly used this alternative
reporting method, while Plaintiffs argue that, even if the
compensation from BrokerageLink qualified as eligible
indirect compensation, it was reported incorrectly, and the
compensation from Financial Engines was not eligible
indirect compensation. We address Plaintiffs’ arguments in
turn.
A
Plaintiffs argue that AT&T incorrectly reported
Fidelity’s compensation from BrokerageLink because the
alternative reporting method is available only if the “sole
compensation received by a recordkeeper is eligible indirect
compensation,” and Fidelity received other types of
compensation. But, as AT&T points out, if the service
provider received compensation other than eligible indirect
compensation, the plan administrator simply “must complete
line 2” of the Form 5500, which AT&T did. U.S. Dep’t of
Labor, Emp. Benefits Sec. Admin., Instructions for Form
5500, at 28. Plaintiffs do not acknowledge this portion of
the Form or argue that AT&T needed to do something more
on line 2.
Additionally, AT&T received the disclosures necessary
to utilize the alternative method to report the BrokerageLink
compensation. See id. AT&T received written materials
from Fidelity disclosing (1) “the existence of” the
compensation from the mutual funds available through
BrokerageLink, (2) “the services provided for” the
compensation (certain recordkeeping or shareholder
services), (3) the “amount (or estimate) of the compensation
or a description of the formula used to calculate or determine
the compensation” (ranges of basis points or flat fees,
depending on the fund), and (4) “the identity of the party or
40 BUGIELSKI V. AT&T SERVICES, INC.
parties paying and receiving the compensation” (Fidelity
received the compensation from the mutual funds, their
investment advisors, or their affiliates). Id.; see also
Revision of Annual Information Return/Reports, 72 Fed.
Reg. 64731-01, 64742 (Nov. 16, 2007) (stating these
requirements). Therefore, we agree with the district court
that AT&T adequately reported the compensation from
BrokerageLink and affirm its judgment on this ground.
B
As to the compensation Fidelity received from Financial
Engines, Plaintiffs challenge AT&T’s position that this
compensation was eligible indirect compensation. The
Form 5500 instructions define “eligible indirect
compensation,” and we emphasize the portion of the
definition on which AT&T relies:
[F]ees or expense reimbursement payments
charged to investment funds and reflected in
the value of the investment or return on
investment of the participating plan or its
participants, finder’s fees, “soft dollar”
revenue, float revenue, and/or brokerage
commissions or other transaction-based fees
for transactions or services involving the plan
that were not paid directly by the plan or plan
sponsor (whether or not they are capitalized
as investment costs).
Investment funds or accounts for this purpose
would include mutual funds, bank
commingled trusts, including common and
collective trusts, insurance company pooled
separate accounts, and other separately
BUGIELSKI V. AT&T SERVICES, INC. 41
managed accounts and pooled investment
vehicles in which the plan invests.
Investment funds or accounts would also
include separately managed investment
accounts that contain assets of individual
plans.
U.S. Dep’t of Labor, Emp. Benefits Sec. Admin.,
Instructions for Form 5500, at 28 (emphasis added).
AT&T asserts that the fees paid by Financial Engines to
Fidelity are “fees . . . charged to investment funds and
reflected in the value of the investment” because the fees
paid to Financial Engines “came directly from the
‘investment funds’ contributed by” Plan participants.
7
In
other words, AT&T argues that these fees are “charged to
investment funds” because “investment funds” includes
“separately managed investment accounts that contain assets
of individual plans.”
But a “separately managed investment account” is a
specific type of investment vehicle; it does not mean, as
AT&T asserts, simply an “investment account” that is
“managed” by an adviser like Financial Engines. Although
a separately managed account is a “portfolio[] of assets
managed by an investment adviser,” it is “usually targeted
towards wealthy individual investors” and differs from a
7
Plaintiffs do not dispute that these fees “were not paid directly by the
plan or plan sponsor.” Moreover, AT&T does not argue that the fees
paid by Financial Engines to Fidelity would qualify as any other type of
“eligible indirect compensation” as that term is defined in the
instructions for Form 5500. See U.S. Dep’t of Labor, Emp. Benefits Sec.
Admin., Instructions for Form 5500, at 28; see also Revision of Annual
Information Return/Reports, 72 Fed. Reg. at 64742 (EBSA’s discussion
of the revisions to the Form 5500 reporting requirements).
42 BUGIELSKI V. AT&T SERVICES, INC.
typical investment account in which the average investor
invests in bonds and mutual funds. Standards for Covered
Clearing Agencies for U.S. Treasury Securities and
Application of the Broker-Dealer Customer Protection Rule
With Respect to U.S. Treasury Securities, 87 Fed. Reg.
64610-01, 64659 (proposed Oct. 25, 2022). Unlike with a
mutual fund, in which an investor shares ownership of the
underlying securities with other investors, an investor in a
separately managed account directly owns shares of the
individual securities, allowing for a high degree of
personalized investment. BlackRock, Separately Managed
Accounts to construct personalized portfolios,
https://www.blackrock.com/us/financial-
professionals/investment-strategies/managed-accounts
[https://perma.cc/2YD8-ZZLN]; Investopedia, Should You
Have a Separately Managed Account?,
https://www.investopedia.com/articles/mutualfund/08/mana
ged-separate-account.asp [https://perma.cc/MHU3-3A2B]
(explaining that with a mutual fund, an investor “share[s]
ownership of the underlying securities with all of the other
investors in the fund,” whereas with a separately managed
account, an adviser purchases shares of specific
companies—not shares of a mutual fund—on the investor’s
behalf).
Here, Financial Engines was not purchasing individual
securities on behalf of Plan participants. Rather, Financial
Engines considered a participant’s age, risk tolerance, and
other characteristics; provided recommendations on how the
participant should invest his or her money; and allocated the
participant’s contributions among the Plan’s “menu of
investment alternatives.” This does not constitute a
“separately managed investment account.” Therefore,
AT&T’s argument that the fees paid to Financial Engines
BUGIELSKI V. AT&T SERVICES, INC. 43
were “eligible indirect compensation”—and therefore did
not need to be separately reported on the Form 5500—fails.
Nor can we affirm on any of the other grounds AT&T
proposes.
AT&T invokes our decision in Mathews v. Chevron
Corp., 362 F.3d 1172 (9th Cir. 2004), where we stated that
to “establish an action for equitable relief under ERISA
section 502(a)(3), the defendant must be an ERISA fiduciary
acting in its fiduciary capacity,” id. at 1178 (internal
citations omitted), and must violate “ERISA-imposed
fiduciary obligations,” id. (quoting Varity Corp. v. Howe,
516 U.S. 489, 506 (1996)). AT&T argues that it did not act
in a fiduciary capacity when completing the Form 5500, so
Plaintiffs cannot establish a claim for equitable relief.
8
But in Mathews, we made this statement in the context
of a claim for breach of fiduciary duty, see id. at 1176, 1180
(stating that “[a]t issue here is an alleged violation of
8
Plaintiffs sometimes frame their reporting claim as a breach of the “duty
of candor,” which we assume is in response to this language in Mathews.
Because equitable relief under § 502(a)(3) is not limited to breaches of
fiduciary duties, we do not decide whether a fiduciary “duty of candor”
exists.
Additionally, contrary to AT&T’s argument, Plaintiffs have not
waived this claim. Plaintiffs have not failed to argue before the district
court that the reporting failures violated ERISA § 103. See 29 U.S.C.
§ 1023. Although Plaintiffs sometimes phrased this argument in terms
of a “duty of candor” under § 404, Plaintiffs have regularly identified
§ 103 as authorizing their claim. They have argued, at least as far back
as their opposition to AT&T’s motion to dismiss the second amended
complaint, that they sought relief “under ERISA § 502(a)(3) enjoining
[AT&T] from filing incomplete and inaccurate Annual Reports and to
correct previous inaccurate disclosures pursuant to 29 U.S.C.
[§] 1023(a)(2).”
44 BUGIELSKI V. AT&T SERVICES, INC.
[§] 404(a)(1),” which imposes the fiduciary duty of
prudence), and the defendant specifically argued that it did
not act in a fiduciary capacity when taking the actions at
issue, id. at 1178. But ERISA’s authorization of suits for
equitable relief, § 502(a)(3), is not limited to claims against
fiduciaries for breach of fiduciary duty. See 29 U.S.C.
§ 1132(a)(3). Instead, § 502(a)(3) authorizes a “participant,
beneficiary[,] or fiduciary” to bring an action “(A) to enjoin
any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other
appropriate equitable relief (i) to redress such violations or
(ii) to enforce any provisions of this subchapter or the terms
of the plan.” 29 U.S.C. § 1132(a)(3) (emphases added); see
also U.S. Dep’t of Labor, Emp. Benefits Sec. Admin., FAQs
about Retirement Plans and ERISA 14,
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-
activities/resource-center/faqs/retirement-plans-and-erisa-
for-workers.pdf [https://perma.cc/TJ3M-NDLV] (“[Y]ou
have a right to sue your plan and its fiduciaries . . . [t]o
address a breach of a plan fiduciary’s duties; or [t]o stop the
plan from continuing any act or practice that violates the
terms of the plan or ERISA.”). Some violations of ERISA
involve a breach of fiduciary duty, as in Mathews, but
ERISA has other “provisions” that can be violated. See
Bafford v. Northrop Grumman Corp., 994 F.3d 1020, 1029
(9th Cir. 2021) (“The [defendant’s] escape from liability on
the fiduciary duty claim does not necessarily exonerate it
from its other statutory obligations.”).
Indeed, in Sereboff v. Mid Atlantic Medical Services,
Inc., 547 U.S. 356 (2006), a fiduciary sued a beneficiary
under § 502(a)(3), not for breach of fiduciary duty, but to
enforce “the terms of the plan,” 29 U.S.C. § 1132(a)(3). 547
U.S. at 359–61. The Court stated that the “only question”
BUGIELSKI V. AT&T SERVICES, INC. 45
regarding the applicability of § 502(a)(3)(B) was whether
the requested relief was “equitable.” Id. at 361. Therefore,
we cannot read Mathews to impose the limitations AT&T
suggests because such a reading would be in direct conflict
with Sereboff—in which the defendant was a beneficiary,
not “an ERISA fiduciary acting in its fiduciary capacity,”
Mathews, 362 F.3d at 1178, and which was brought to
enforce the terms of the plan, not to remedy violations of
“ERISA-imposed fiduciary obligations,” id. (quotation
omitted). And we have recognized that Mathews must be
read in context, as we have framed the inquiry differently in
other cases. See, e.g., Warmenhoven v. NetApp, Inc., 13
F.4th 717, 725 (9th Cir. 2021) (“A § [502(a)(3)] claim has
two elements: ‘(1) that there is a remediable wrong, i.e., that
the plaintiff seeks relief to redress a violation of ERISA or
the terms of a plan; and (2) that the relief sought is
appropriate equitable relief.’” (quoting Gabriel v. Alaska
Elec. Pension Fund, 773 F.3d 945, 954 (9th Cir. 2014)).
Thus, Plaintiffs can bring an equitable reporting claim
without a breach of fiduciary duty claim.
AT&T also argues that Plaintiffs’ reporting claim must
fail because Plaintiffs cannot show that any errors in the
Form 5500s led to loss. But we have rejected this argument
when the plaintiff seeks only equitable relief, as Plaintiffs do
here. See Shaver v. Operating Eng’rs Local 428 Pension Tr.
Fund, 332 F.3d 1198, 1203 (9th Cir. 2003). Therefore, we
reverse the judgment of the district court regarding AT&T’s
reporting of the compensation from Financial Engines.
VII
Because the district court did not correctly apply the
relevant substantive law to Plaintiffs’ prohibited-transaction
and duty-of-prudence claims, we reverse and remand for it
46 BUGIELSKI V. AT&T SERVICES, INC.
to do so. 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. Costs are awarded to Plaintiffs.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
