John Hancock defeats ERISA foreign tax credit lawsuit

A new order has been issued by the United States District Court for the Southern District of Florida in an Employee Retirement Income Security Violation Lawsuit filed against John Hancock Life Insurance Co. and various related defendants.

The lengthy order, which spans 84 pages and quotes both Albert Camus and Jean-Paul Sartre for rhetorical effect, ultimately sides firmly with John Hancock’s defense, finding that the trial and plaintiffs’ claims are “inconsistent with the choices they have made regarding their ERISA plan and the party with whom they have contracted to provide ERISA-related services.”

In late January, the court issued an order certifying a significant class of plaintiffs, including trustees, sponsors and administrators of benefit plans who purchased a group variable annuity contract from John Hancock Life Insurance Co. through its Signature platform, which is run by John Hancock’s Pension Services Division. The underlying case emerged in 2021 when administrators of the Romano Law PL 401(k) plan sued John Hancock over the treatment of tax credits related to investments “in stocks and securities of foreign companies” that they chose for their plan under the group contract.

The plaintiffs alleged that John Hancock breached the fiduciary duty of loyalty of the Employees Retirement Income Security Act by receiving and retaining foreign tax credits for international investment options, which allegedly resulted in an alleged reduction in the value of plan assets. The plaintiffs also alleged that John Hancock caused the plan to enter into an ERISA-prohibited transaction by not crediting him with the value of the FTCs.

As discussed in the Group Certification Motion Order, some of the investments held foreign securities and incurred foreign taxes. The plaintiffs alleged that John Hancock had not actually paid the foreign taxes; effectively, they say, the plan did, because the value of plan participants’ investments declined by the amount of taxes paid.

The new order concludes unequivocally that there was nothing unfair about John Hancock “using, for himself, the foreign tax credits which only he, as a taxpayer, could use”.

“Not only could the plaintiffs be barred from using FTCs, they identify no contractual language requiring John Hancock to give them the functional equivalent of FTCs – a rebate or credit,” the order states. “Furthermore, the plaintiffs have cited no legal authority on the point in support of their unique premise that John Hancock was required to provide rebates or credits simply because the plaintiffs themselves chose to invest. in mutual funds that invested in foreign securities. Similarly, plaintiffs have not submitted any legal authority establishing that John Hancock’s use of FTCs breached a fiduciary duty or was in any way a prohibited transaction. even if it was authorized by the federal tax code.

The order finds that it was the plaintiffs, not John Hancock, who ultimately decided the scheme would be responsible for the foreign tax payments by selecting the funds they made.

“It was the plaintiffs who decided to end their relationship with John Hancock by selecting another entity to provide the services that John Hancock had provided, even though the replacement also did not provide FTC (or rebates or credits for FTC),” the order reads. . “The plaintiffs elected to enter into a contract with John Hancock which expressly and unequivocally waived John Hancock’s possible role as a possible trustee, except in limited circumstances of ministerial acts unenforceable here.”

The full text of the new summary judgment order is available here.

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