In Bidwell v. University Medical Center, Inc., Case No. 11-5493, the Sixth Circuit found that plan fiduciaries are shielded from claims over investment losses where they transfer defined contribution accounts into a Qualified Default Investment Alternative (“QDIA”), after notice to the participant, even where the participant had previously made an affirmative investment election.
Plaintiffs James Christopher Bidwell and Susan Wilson were participants in University Medical Center, Inc.’s (“UMC”) defined contribution retirement plans. Both had elected to be 100% invested in the Lincoln Stable Value Fund (the “Stable Fund”), which UMC had previously used as a default investment vehicle for the plan.
In 2007, the Department of Labor (“DOL”) promulgated new regulations under the Pension Protection Act that permitted plan administrators to automatically invest participant accounts in a QDIA under certain circumstances. The regulation created a safe harbor for plan administrators that directed automatic-enrollment investments into QDIA’s, which the DOL defined as investments “capable of meeting a worker’s long-term retirement savings needs.”
In 2008, UMC designated a new fund, known as the Lifespan Fund, as the plan’s QDIA. Because UMC did not have records of which plan participants elected the Stable Fund and which participants were investors by default, the Company, through a vendor, sent notice to all participants with 100% allocation to the Stable Fund, indicating that all existing investments in the Stable Fund would be transferred into the QDIA unless the participant specifically directed otherwise. Plaintiffs did not make a specific election; therefore, their accounts were 100% allocated into the Lifespan Fund.
Plaintiffs claimed not to have received notice of this transfer until they received their first quarterly statement. Plaintiffs transferred their investments back to the Stable Fund, but claimed to have suffered substantial investment losses as a result of the involuntary transfer. After exhausting their administrative remedies under the plan, Plaintiffs filed suit to recover their investment losses. The District Court granted summary judgment in favor of UMC.
On appeal, Plaintiffs argued that UMC was not entitled to the safe harbor protection because Plaintiffs had made a specific investment election. In affirming the District Court’s decision, the Sixth Circuit looked to the language of the regulation and the DOL’s preamble to the final regulation. The Court found the DOL’s interpretation to support the position that upon proper notice, participants who previously elected a specific investment can become non-electing plan participants if they fail to respond to a specific request for an election – precisely what happened to the Plaintiffs. The Court also found that the method of notice to the plan participants (which was mailed by a third party to participants’ homes) was sufficient because it was “reasonably calculated to ensure actual receipt.”
Bidwell is a good decision for plan administrators because it affirms that they can transfer participant investments to a QDIA under certain circumstances, provided they have given reasonable notice. While the specific holding is relatively narrow (there was no challenge to whether the safe harbor applied, for example) the decision can be read more broadly to reflect a view that participants who fail to take requested action after having been given notice should not be heard to complain of the consequences.