or guaranteed cost contract, under which an insurance company would agree to guarantee the Plan's accrued benefits. (Findings 35-36).
In evaluating this second option, Clabir requested that Connecticut General provide it with a quote as to the premium it would charge to provide a guaranteed cost contract with respect to all accrued benefits under the Plan, i.e. both active and retired lives. On Wyatt's advice, Clabir also considered seeking competitive bids for a guaranteed cost contract from other insurance companies. However, this option was limited by the contractual terms of GR-81, the deposit administration, group annuity contract which Connecticut General had issued to HMW in 1940. (Findings 37-39).
Connecticut General took the position that, under the terms of GR-81, the only funds which HMW and Clabir could withdraw and use to purchase a competitively bid guaranteed cost contract were those in the Deposit Administration Account. Connecticut General felt that the funds in the Retired Lives Account could not be withdrawn as they were supporting the guaranteed benefits being paid by Connecticut General to retirees under the terms of Retirement Annuities which Connecticut General had sold to the Plan as participants retired. Moreover, Connecticut General maintained that it had the option under GR-81 to pay-out the funds in the Deposit Administration Account over a ten year period, thereby further restricting HMW's ability to competitively bid the guaranteed cost contract with respect to the active-lives. Believing that any payment over time of the Deposit Administration Account would be insufficient to purchase annuities for all active-lives participants, Clabir and HMW, with the advice of Wyatt, grudgingly accepted Connecticut General's interpretation of the contract and decided to purchase the guaranteed cost contract from Connecticut General for $ 16.9 million, without the benefit of competitive bids. (Findings 50-51).
Plaintiffs claim that Connecticut General exercised discretionary authority or control over the Plan's purchase of the guaranteed cost contract and thereby became an ERISA fiduciary, under the terms of GR-81. They allege that Connecticut General "prohibited the Plan from seeking competitive bids and then charged the Plan a 'captive' premium" for the guaranteed cost contract it sold to the plan. Preliminary Trial Memorandum Relating To The Fiduciary Status Of Connecticut General Life Insurance Company, docket entry no. 203, at 4. We begin by reviewing the terms of GR-81.
GR-81 operated like most standard Deposit Administration contracts. From 1940 to 1984, HMW and its employees made annual contributions in the form of premiums paid to Connecticut General. Those contributions were deposited into Connecticut General's unallocated, general account and credited to the Deposit Administration Account. In exchange, Connecticut General promised to provide a fixed level of benefits to Plan participants upon their retirement.
Although GR-81 contained no express provision regarding the disposition of funds held in the Retired Lives Account at Plan termination, the contract effectively prohibited the withdrawal of those funds and the repurchase of retirement benefits from another insurer. (Finding 23). However unartfully drawn, it is clear from the contractual language of GR-81 that the Retirement Annuities which were provided to participants upon their retirement were not in fact annuities. Rather, the Retirement Annuity served only as a bookkeeping device. Upon the retirement of a Plan participant, GR-81 provided that Connecticut General "credit" the participant with a Retirement Annuity. (Finding 13). Once credited, GR-81 prohibited the cancellation of a Retirement Annuity, except under very limited circumstances not present in this case. (Finding 15). In addition to crediting the retiree with a Retirement Annuity, GR-81 provided that Connecticut General issue a Certificate to the retiree as evidence that the credit had been made. (Finding 14). It is undisputed that the Certificate constituted a binding contract on Connecticut General to provide the guaranteed benefits. (Finding 16). Moreover, GR-81 contained no mechanism under which additional premiums could be deposited into the Retired Lives Account in the event it became under-funded. (Finding 18). Taken together then, the funds in the Retired Lives Account remained Plan assets on paper only, and there can be no question that the funds, minus any necessary Rate Credits, belonged to Connecticut General. (Finding 23).
Our interpretation of GR-81 is further strengthened by the fact that GR-81 operated on an experienced rating basis. In the event that the actuarial assumptions of GR-81 turned out to be overly conservative and there were more funds than necessary in the Retired Lives Account to satisfy the benefits of retirees, GR-81 provided for a Rate Credit to be returned from the Retired Lives Account to the Deposit Administration Account. (Finding 18). But for these Rate Credits, there would be no reason to maintain the Retired Lives Account. Rather, as an individual retired, an actual annuity would have been purchased, and in that situation, the retirement funds would have passed immediately to Connecticut General. Accordingly, GR-81 prohibited cancellation of the Retirement Annuities and their repurchase from another insurer, and we find that, in declining to permit HMW to repurchase from another insurer the benefits previously guaranteed by Connecticut General to retirees, Connecticut General was properly adhering to the terms of its contract with HMW.
On the other hand, under the terms of GR-81, HMW had two options for dealing with the Deposit Administration Account. The first option was that of purchasing a Retirement Annuity, at Plan termination, with the funds in the Deposit Administration Account to satisfy those benefits due the active-lives. (Findings 19-20). Alternatively, HMW had the option of withdrawing all funds from the Deposit Administration Account and releasing Connecticut General from any obligation to active-lives participants. (Finding 21). Under the second option, Connecticut General had the right to pay-out the funds in the Deposit Administration Account over a ten year period. (Finding 21). Therefore, HMW and Clabir had the option, at least on paper,
to competitively bid the active-lives portion of the guaranteed cost contract at Plan termination.
2. Connecticut General's Reliance On GR-81.
The Courts have consistently and repeatedly held that if a specific contractual term is bargained for at arm's length, adherence to that term, at a pre-determined price, is not a breach of fiduciary duty. See e.g. American Fed'n of Unions v. Equitable Life Assur. Soc'y, 841 F.2d 658, 664 (5th Cir. 1988); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 737 (7th Cir. 1986), cert. denied, 482 U.S. 915, 107 S. Ct. 3188, 96 L. Ed. 2d 676 (1987) (citing Schulist v. Blue Cross, 717 F.2d 1127 (7th Cir. 1983)); Trustees of Laborers' Local 72 v. Nationwide Life, 783 F. Supp. 899, 908-911 (D. N.J. 1992). When, however, a contract grants an insurer discretionary authority to later change the terms of a contract, the insurer may be a fiduciary, even though the contract is itself the product of an arm's length bargain. Ed Miniat, 805 F.2d at 737 (citing Chicago Board Options Exchange v. Connecticut General Life Insurance Co., 713 F.2d 254 (7th Cir. 1983). In so holding, the courts have reasoned that an insurance policy itself is a plan asset and therefore, the ability to amend it and thereby affect its value, grants discretionary control over that asset to the insurer. Id.
Under these well established principles, we find no basis for holding that Connecticut General exercised discretionary control over the Plan or its assets when it purchased Retirement Annuities from itself at pre-determined prices and with funds from the Retired Lives Account. Nationwide Life, 783 F. Supp. at 908-911; Associates In Adolescent Psychiatry v. Home Life, 729 F. Supp. 1162, 1188-89 (N.D. Ill. 1989), aff'd, 941 F.2d 561 (7th Cir. 1991), cert. denied, 112 S. Ct. 1182, 117 L. Ed. 2d 426 (1992). These transactions were precisely what HMW had bargained for and what the parties agreed to under the terms of GR-81. Accordingly, Connecticut General assumed no fiduciary duties when it refused to permit Clabir or HMW to withdraw the funds in the Retired Lives account or to competitively bid those benefits which Connecticut General had previously guaranteed.
In response, plaintiffs argue that GR-81 vested discretionary control in Connecticut General over the Plan's assets by giving Connecticut General the contractual right to disburse 95%-100% of the funds of the Deposit Administration Account over a period of ten years. In support of their position, plaintiffs rely on Chicago Board Options Exchange v. Connecticut General Life Insurance Company, 713 F.2d 254 (7th Cir. 1983), a case in which the insurer unilaterally amended the plan to include a similar provision, to the case at bar, under which contributions to the plan could not be withdrawn for ten years. The Seventh Circuit held as follows:
Nevertheless, the policy itself is a Plan asset, and [the insurer's] ability to amend it, and thereby alter its value, is not qualitatively different from the ability to choose investments. By locking [plaintiffs] into the Guaranteed Accounts for the next 10 years [the insurer] has effectively determined what type of investment the Plan must make. In exercising this control over an asset of the Plan, [the insurer] must act in accordance with its fiduciary obligations.
Chicago Board, 713 F.2d at 738.
We find plaintiffs' argument unpersuasive. In Chicago Board, the insurer made a unilateral change to a plan thereby imposing an investment decision on the plan and its participants. By contrast, in the case at bar, Connecticut General's right to disburse the funds in the Deposit Administration Account over a ten year period, was in effect part of the pre-determined price HMW agreed to pay for Connecticut General's services. In exchange for assuming certain risks associated with underwriting a pension plan, Connecticut General bargained for and was granted the right to retain up to 5% of the funds in the Deposit Administration Account and to disburse the remaining 95% of the funds over a ten year period. While we agree that this ten year option amounts to an investment decision on behalf of the Plan, this decision was not made by Connecticut General; rather it was made by HMW pursuant to an arms-length transaction and the conditions of the marketplace in 1940. Therefore, we find that Connecticut General assumed no fiduciary obligations when it refused, under the terms of GR-81, to pay out in a lump sum the funds in the Deposit Administration Account. Ed Miniat, 805 F.2d at 737; Nationwide Life, 783 F. Supp. at 908-911.
If Connecticut General were to become a fiduciary merely by enforcing the terms of GR-81, then contrary to the plain language of 29 U.S.C. § 1101(b)
and contrary to the Third Circuit's holding in Mack Boring and Parts v. Meeker Sharkey Moffitt, 930 F.2d 267, 270-276 (3d Cir. 1991), the assets of any issuer of a standard, deposit administration annuity contract would become plan assets, burdened with ERISA's fiduciary obligations. We cannot endorse such a result here. Accordingly, we find that Connecticut General assumed no fiduciary responsibility when, under the terms of GR-81, it prohibited Clabir and HMW from withdrawing the funds in the Deposit Administration Account in a lump sum payment or when it refused to permit competitive bidding for those benefits supported by the Retired Lives Account.
Despite these clear precedents, plaintiffs appear to argue that Connecticut General exercised or otherwise usurped HMW's decision-making control over the terms and price of the guaranteed cost contract by relying upon the favorable terms of GR-81 during its negotiations with Clabir and HMW. More specifically, plaintiffs argue that "since any payment over time of the insignificant active life account would not pass IRS muster and certainly would not be sufficient to purchase annuities for all participants, the "'appropriate' option that HMW should have been given was the choice of having all of its money back [both the active and retired lives accounts] to seek competitive bids." Plaintiffs' Post-Trial Mem. n. 8 at 21 (emphasis in original).
Even if, plaintiffs are correct, and any payment over time of the Deposit Administration Account was insufficient to purchase the active-lives benefits from another insurer, we cannot find, and plaintiffs have not cited, any authority for the proposition that ERISA's fiduciary duties require an insurer, and non-fiduciary, to rewrite the terms of an arm's length transaction, to the detriment of the insurer's shareholders, before entering into further negotiations with a pension plan. We cannot impose fiduciary obligations on Connecticut General for selling a product to the Plan merely because participants do not like the bargain that they once struck. While the $ 5.4 million held in the Deposit Administration Account may have been insufficient, alone, to purchase the accrued benefits due the active-lives, if coupled with the $ 8 million in the Trust Funds, there is no evidence that plaintiffs' had insufficient funds to competitively bid the active-lives benefits.
(Findings 44-52). When viewed in this light, Connecticut General merely offered to sell the guaranteed cost contract to HMW and negotiated the terms and price of such product on its own behalf. As the courts have held, simply urging the purchase of its products does not make an insurance company an ERISA fiduciary with respect to those products. Flacche v. Sun Life Assur. Co. of Canada, 958 F.2d 730, 734-35 (6th Cir. 1992); Consolidated Beef Indus. Inc. v. New York Life Ins. Co., 949 F.2d 960, 965 (8th Cir. 1991), cert. denied, 112 S. Ct. 1670, 118 L. Ed. 2d 390 (1992); American Fed'n of Unions, 841 F.2d at 664.
Moreover, while the pre-determined terms of GR-81 may have defined the outer limits of the negotiations between the parties, plaintiffs have failed to introduce any evidence which demonstrates that Clabir and HMW were compelled to purchase the guaranteed cost contract from Connecticut General upon the terms and at the price offered by Connecticut General. To the contrary, the evidence clearly demonstrates that Clabir and HMW carefully considered their options and actively negotiated the price with Connecticut General. (Findings 40-43). In fact, in the face of Clabir and HMW's bargaining power, Connecticut General reduced its price from $ 18.8 million to $ 16.9 million. (Finding 43). Furthermore, the terms of GR-81 appear to have protected Plan participants from the very self-dealing of which Connecticut General now stands accused. The price and terms of the guaranteed cost contract were subject, in part, to the pre-determined prices of GR-81. (Finding 13). Benefits, for retirees, for which there was no room for negotiation, accounted for $ 11.5 million of the $ 16.9 million purchase price. (Finding 44-45). Similarly, the price of the active-lives benefits were subject, at least in part, to the actuarial tables of GR-81. (Finding 20). Accordingly, there is simply no basis for finding that Connecticut General exercised decision-making authority over the price or terms of the guaranteed cost contract purchased by the Plan.
C. Surplus Assets Allocation Claim.
Plaintiffs also argue that Connecticut General became a fiduciary with respect to the allocation of the Plan's surplus assets when it selected one of three pre-approved PBGC formula and then determined that eighty-three percent (83%) of the surplus assets would revert to HMW and that the remaining seventeen percent (17%) would be allocated among the Plan participants. While we agree with plaintiffs that this decision involves a fiduciary undertaking,
we find no evidence that Connecticut General was ultimately responsible for making this decision. Rather, we find on the record before us, that it was HMW's responsibility, as the administrator of the Plan, to make this decision and that plaintiffs have failed to prove by a preponderance of the evidence that HMW or Clabir, delegated this responsibility or its decision-making authority to Connecticut General or that Connecticut General in fact exercised decision-making control.
The evidence clearly demonstrates that Clabir made all of the fiduciary decisions related to the Plan's termination. Clabir, fully cognizant of the over-funded HMW Plan and desirous of acquiring the largest possible portion of the surplus assets, made a tender offer for and acquired HMW in 1983. (Findings 26-27). Shortly thereafter, Clabir informed HMW that the Plan would be terminated, and by December, 1983, began to take action to effectuate that decision. In this regard, by January 1984, Clabir had retained the New York law firm of Donovan, Leisure, Newton & Irvine, a nationally prominent law firm, the Wyatt Company, an international actuarial consulting firm, and Coopers & Lybrand, a "Big Eight" accounting firm, to coordinate and oversee the termination of the HMW Plan. (Findings 28-32). Clabir appointed several of its senior officers, including Richard Van Hoesen, James Schell, and Bernard Marren, to coordinate and oversee all work on the termination. (Finding 29).
On January 5, 1984, Clabir called all of these parties together, for a meeting in Lancaster, Pennsylvania, to discuss the HMW Plan termination. (Finding 28). Mr. Van Hoesen of Clabir and Timothy O'Neill of Donovan, Leisure presided over this meeting, set timetables, and assigned responsibilities for the Plan's termination. (Finding 31). At this meeting, Connecticut General was assigned the task of calculating the amount of surplus assets and the allocation of such surplus between employer and employees. (Finding 33). Thereafter, between January 1984 and May 1985, Connecticut General selected, subject to Clabir's approval, the most appropriate of three, pre-approved PBGC formulae, and determined, based on certain actuarial assumptions, that eighty-three percent (83%) of the surplus assets would revert to the employer and the remaining seventeen percent (17%) would be distributed among the Plan participants. (Findings 66-69).
During this time, employees questioned Connecticut General's calculations and complained to their elected representatives and the PBGC. (Finding 78). Shereff, Friedman, Hoffman & Goodman, a second law firm retained by Clabir, and Wyatt reviewed and reaffirmed the accuracy of Connecticut General's calculations. (Finding 78). Ultimately, however, Clabir conducted its own independent review of Connecticut General's surplus asset calculations and made the final decision to implement Connecticut General's calculations in dividing the surplus Plan assets between itself and the employees. (Findings 77, 79).
Taken together, we find no basis for finding that Connecticut General acted in any capacity other than as an actuary rendering professional advice for which there can be no fiduciary liability. Painters of Philadelphia Dist. Council No. 21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146, 1150-51 (3d Cir. 1989) (quoting Interpretive Bulletin 75-5, 29 C.F.R. § 2509.75-5 (1988)); see also Pappas v. Buck Consultants, Inc., 923 F.2d 531, 535-38 (7th Cir. 1991); Mertens v. Hewitt Associates, 948 F.2d 607, 610 (9th Cir. 1991), cert. filed, 112 S. Ct. 2936, 119 L. Ed. 2d 561 (1992); Nieto v. Ecker, 845 F.2d 868, 870 (9th Cir. 1988).
The Seventh Circuit recently addressed this issue in the context of allegations against actuaries virtually identical to those found herein. In Pappas v. Buck Consultants, Inc., 923 F.2d 531 (7th Cir. 1991), the trustee and plan sponsor alleged, inter alia, that the defendant actuaries breached ERISA's fiduciary duties in connection with the termination of a pension plan by incorrectly calculating the distribution of benefits to a plan participant. 923 F.2d at 533-34. In Pappas, the plaintiff complained that the actuary defendant became a fiduciary when they gave advice to plan trustees and invited reliance on that advice, without disclosing the reasoning behind the actuarial assumptions and methodologies they adopted. Id. at 535-38. The court soundly rejected these claims, concluding that the Third Circuit's reasoning in Painters of Philadelphia Dist. Council No. 21 Welfare Fund v. Price Waterhouse, should extend to the actuarial profession:
The terms 'discretionary authority,' 'discretionary control,' and 'discretionary responsibility' in § 1001(21)(A) . . . [speak] to actual decision-making power rather than to the influence that a professional may have over the decisions made by the plan trustees she advises.
* * *
ERISA plan trustees hire actuaries because they lack the training to perform the required calculations themselves and because it would be inefficient for them to acquire it given the small amount of actuarial work they need to do to manage their plans. . . . This does not mean, of course, that plan administrators may not question their actuary's conclusions. Some may choose to do so, to a greater or lesser degree. Plaintiff's argument, however, would effectively require actuaries to lead their clients through the methodologies, assumptions, and calculations underlying the conclusions they reach, step by tortuous step; actuaries who did not provide this level of tutelage would risk coming within ERISA's definition of a fiduciary, with the potential liability that entails. . . . We are reluctant to reshape the relationship between actuaries and their clients in this way, at least absent an unambiguous indication that Congress intended this result.
879 F.2d at 535, 538.
Contrary to plaintiffs' allegations, there is no evidence on the record before us that Connecticut General did more than provide actuarial advice to the Plan and invite reliance thereon. While Connecticut General selected which PBGC formulae would be used and, based on certain actuarial assumptions, calculated the allocation of surplus assets, the evidence clearly shows that both the choice of formula and the final calculations were subject to the review and ultimate approval of Clabir, HMW, and their outside advisers. (Findings 76-79). Accordingly, we must find that Clabir and HMW retained and exercised the actual decision-making authority as to whether or not to distribute surplus assets on a basis consistent with Connecticut General's actuarial calculations.
Connecticut General Role.
Recognizing that professionals are ERISA fiduciaries "if they go beyond their normal roles and assume management or administrative responsibilities," Painters of Philadelphia, 879 F.2d at 1150 (quoting Joint Explanatory Statement of the Committee of Conference, p. 323, reprinted in 3 Legislative History of the Employee Retirement Security Act of 1974 at 4590), plaintiffs seek to distinguish Connecticut General's conduct at Plan termination from the Pappas actuaries. In this regard, plaintiffs advance three arguments in support of their position that Connecticut General acted outside of the usual and customary role of an actuary and assumed management or administrative responsibilities with respect to the allocation of the Plan's surplus assets. First, plaintiffs argue that by virtue of Connecticut General's multi-faceted relationship to the Plan, Connecticut General was able to exert an unusual degree of influence and discretion over the Plan's decision to adopt and implement Connecticut General's calculations. Second, plaintiffs argue that Connecticut General transcended its role as an actuary by intentionally manipulating its actuarial calculations in favor of HMW in an effort to exact an excessively high premium. Third, plaintiffs argue that Connecticut General acted outside the scope of an actuary when it made a legal determination that a reversion of surplus assets was permitted under the Plan documents.
1. Connecticut General's Multiplicity Of Services.
With respect to their first argument, plaintiffs' seem to argue that having provided a variety of services and products to the Plan over the course of its forty-four (44) year history, thereby gaining HMW's respect and confidence, Connecticut General essentially had carte blanche over the decision to distribute most of the Plan's surplus assets to HMW. Plaintiffs' argument, however, is unsupported by both the case law and the facts of this case.
Both the Seventh and Third Circuits have clearly held that a professional does not become a fiduciary by merely giving professional advice and seeking reliance upon that advice. Pappas, 923 F.2d at 535; Philadelphia Painters, 879 F.2d at 1150. Accordingly, the mere fact that Connecticut General may have developed a positive relationship with HMW over the years and that HMW may have been less likely to question Connecticut General's advice, does not make Connecticut General a fiduciary. Similarly, at least one district court has refused to infer fiduciary responsibility merely because an insurer has provided a variety of products and services to a plan, where none of these services, standing alone, created fiduciary duties:
Plaintiffs contend that Pappas and similar cases are distinguishable because defendants herein provided more than advice; they performed a multiplicity of functions affecting the Plan's financial integrity in many ways even including the provision of the 'investment vehicle' for Plan assets -- the Group Annuity Contracts. The Court disagrees, however, that a 'package deal' of services and products, none of which separately creates fiduciary status, necessarily betokens an unusual degree of influence because of their variety and number. In this case, despite the breadth of services involved and the Plan' trustees' reliance thereon, the Court does not find that defendants exercised an unusual degree of influence, transcended their roles as consultants and sellers of insurance, or otherwise had control or authority over the Plan or its assets.