April 12, 2021

ERISA Litigation Roundup: Another Court Finds 401(k) Plan Participant Data Is Not a Plan Asset

The Southern District of Texas has dismissed breach of fiduciary duty claims against Fidelity Investments, holding that participant data is not a plan asset and that Fidelity did not improperly use that data. Harmon v. Shell Oil Co., 2021 WL 1232694 (S.D. Tex. Mar. 30, 2021).

In its role as the plan’s recordkeeper, Fidelity Investments Institutional Operations Company, Inc., maintained various categories of confidential participant data, including participants’ names, contact information, social security numbers, financial information, account balances, age, income and marital status. The plaintiffs alleged that the participant data is a “plan asset” under ERISA, making Fidelity an ERISA fiduciary, and that Fidelity breached its fiduciary duties by sharing the participant data with the other Fidelity defendants, which allegedly used the data to solicit participants for additional Fidelity products. They also alleged that Shell Oil’s transfer of the participant data to Fidelity constituted a prohibited transaction, and sought injunctive relief seeking to prohibit Fidelity from using participant data to market other Fidelity retail products.

As a threshold matter, the court rejected the plaintiffs’ foundational contention that participant data is a plan asset, noting that 29 C.F.R. §§ 2510.3-101 and -102, which define “plan assets,” do not mention data. Accordingly, all of the plaintiffs’ claims failed. The Southern District of Texas is the latest court to reject breach of fiduciary duty claims based on a party’s use of participant data, following Divane v. Northwestern University, 2018 WL 2388118 (N.D. Ill. May 25, 2018), aff’d, 953 F.3d 980 (7th Cir. 2020).

As Judge Brown noted in the Harmon decision, no court “has ever held that releasing or allowing someone to use confidential information constitutes a breach of fiduciary duty under ERISA.” While true, other cases involving similar allegations have settled, and the settlement agreements have prohibited recordkeepers from using participant data to sell nonplan products unless the participant specifically requested it. Accordingly, plan sponsors and recordkeepers should be aware that we have not seen the last of litigation regarding the use of participant data.

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