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Bank of America Proprietary Mutual Funds Litigation David Alphin Trust Regulatory News A.M. Publishing Garbo Proprietary Mutual Fund Litigation -- BofA Wins Big, Again

(Oct. 3, 2011 --Chicago, IL) -- A federal court on September 22 dismissed plaintiffs' allegations that Bank of America breached its fiduciary duties in its 401(k) plan by selecting bank-affiliated mutual funds as an investment option.

The lawsuit, which was filed in 2006 and sought class-action status, alleged the bank engaged in self-dealing through its 401(k) plan when it "selected and repeatedly failed to remove" proprietary mutual funds. These funds, plaintiffs asserted, generated "substantial higher fees" for banks than did non-bank-affiliated funds and performed more poorly.

Plaintiffs further alleged that the bank actively sought to mislead participants by failing to adequately disclose fees and the relation- ship between the funds and the bank.

Plan fiduciaries are obliged to monitor funds contained in the plan lineup for material changes, according to Judge Max Cogburn, Jr., U.S. District Court for the Western District of North Carolina. However, he writes, "the court can find no continuing obligation [under ERISA] to remove, revisit, or reconsider funds based on allegedly improper initial selection."

Cogburn notes that "ERISA does not impose any obligation on fiduciaries to revisit their initial decision to include bank-affiliated funds in the plan lineup; rather, it prohibits and makes actionable a plan fiduciary's decision to engage in a prohibited transaction."

With one exception, Cogburn, in his 34-page ruling, found that plaintiffs' claims were time-barred under ERISA's six-year statute of limitations.

Plaintiffs, in their third amended complaint, attempted to skirt the six- year rule by arguing that each purchase of proprietary mutual fund shares was a new violation. They asserted that plan fiduciaries had a continuing obligation to remove "offending funds" from the plan, because contributions are allocated every month.

Cogburn strongly disagreed, finding that "not only does such argument run counter to logic … [it] has been rejected by other courts."

Bank of America has been the target of multiple lawsuits alleging that it used fiduciary funds to bolster its proprietary funds. The overwhelming majority of these have been dismissed.

For more on this topic, see the current issue of Trust Regulatory News.

No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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