Supreme Court Declines AT&T Appeal in ERISA Prohibited Transaction Case

The Supreme Court did not provide any commentary on its decision to deny certiorari. The underlying dispute focuses on alleged prohibited transactions in a defined contribution plan, specifically whether AT&T breached its fiduciary duty when it added brokerage and advisory services from Fidelity Investments in 2012 and 2014. Plaintiffs claim AT&T failed to evaluate or disclose all compensation paid to Fidelity after these services were added.

Originally, the district court ruled in favor of AT&T, granting summary judgment on the grounds that Fidelity received compensation from third parties and that the plan itself was not a party to the compensation, so AT&T was not obligated to evaluate or disclose it. However, in August 2023, the Ninth Circuit reversed this decision, holding that the compensation constituted a prohibited transaction because AT&T added optional services to the plan that were paid for by participant fees. The appellate court found that the district court had not properly applied the relevant substantive law to the plaintiffs’ prohibited-transaction and duty-of-prudence claims, and remanded the case for further proceedings.

The Ninth Circuit determined that ERISA Section 406’s broad scope covers arm’s-length transactions and that AT&T, by amending its contract with Fidelity to include additional services, caused the plan to engage in a prohibited transaction. The case was remanded to determine whether AT&T could demonstrate that the arrangement qualified for an exemption-specifically, whether the contract was reasonable, the services were necessary, and the compensation paid was no more than reasonable.

ERISA prohibits certain transactions involving plan assets and parties-in-interest, but provides exemptions for defined contribution plans to engage in specific transactions with fiduciaries, plan executives, or service providers if certain conditions are met. Several industry groups had submitted amicus briefs urging the Supreme Court to hear the appeal, but the Court’s decision means the district court will now reconsider the case under the Ninth Circuit’s guidance.

This decision follows a recent Supreme Court ruling in favor of Cornell University employees, which clarified pleading standards for ERISA prohibited transaction claims and may lead to increased litigation in this area. As a result, Bugielski v. AT&T will return to the Central District of California for further proceedings.