The U.S. District Court for the Southern District of Texas recently dismissed breach of fiduciary and other claims against Shell Oil Company retirement plan record keeper Fidelity Investments in Harmon v. Shell Oil, where 401(k) participants claimed that Fidelity shared participant data with its affiliates for marketing purposes in violation of ERISA.
The class action suit alleged that Fidelity breached its fiduciary duties under ERISA by sharing the personal data of Shell’s 401(k) plan participants — including contact information, Social Security numbers, age, marital status, 401(k) account balances and investment history — with its affiliates for use in marketing nonplan financial services and products to plan participants.
Plan participants claimed that their confidential data is a “plan asset” under ERISA, thereby making Fidelity an ERISA fiduciary, and that Fidelity breached its fiduciary duty by sharing plan participant data with other Fidelity affiliates for marketing purposes. In addition, plaintiffs claimed that Shell’s transfer of plan participant data to Fidelity was a prohibited transaction.
In dismissing plaintiffs’ claims, the court said that under ERISA, the Department of Labor (DOL) has the authority to define plan assets and the DOL has yet to carve out participant data as a plan asset. Instead, the court noted that when considering plan assets questions, other courts have relied on “ordinary notions of property rights under non-ERISA law” and that when applying that standard, the court was unable to conclude that participant data is an ERISA plan asset. In drawing that distinction, the court referenced the Seventh Circuit’s 2018 decision in Divane v. Northwestern University, which acknowledged that while participant data has some value, it does not rise to the level of a plan asset under ordinary notions of property rights.
While it is true that no court “has ever held that releasing or allowing someone to use confidential information constitutes a breach of fiduciary duty under ERISA” as the court’s opinion noted in this case, there have been other cases with similar allegations that have been settled where the settlement agreements have barred record keepers from sharing participant data to sell nonplan products or services. Subsequently, plan sponsors and record keepers should recognize that litigation involving participant data is likely to continue.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you follow the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.
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