Summary Judgment Granted for Defendants in Novel Case Challenging Treatment of Foreign Tax Credits

Key Takeaway: John Hancock Life Insurance Company was found not to be a fiduciary with respect to its treatment of foreign tax credits as recordkeeper to 401(k) plans, and alternatively was found not to have breached any duties even if it had any relevant fiduciary duties. John Hancock was represented by Goodwin in the case.

On May 2, 2022, the U.S. District Court for the Southern District of Florida granted summary judgment in favor of John Hancock in a class-action lawsuit filed by the trustees of a retirement plan. The suit alleged that John Hancock, when acting as a plan recordkeeper, breached its ERISA fiduciary duties and entered into prohibited transactions in connection with its treatment of foreign tax credits (“FTCs”) relating to international investments options selected by clients’ plan fiduciaries for their plans. In short, the plaintiffs alleged that John Hancock should have provided rebates or credits back to client plans in the amount of the FTCs rather than (or in addition to) applying the FTCs on its own tax returns.

The district court ruled in favor of John Hancock. First, it held that John Hancock was not an ERISA fiduciary with respect to its treatment of FTCs in the filing of its corporate tax returns. In reaching this conclusion, the court determined that the only act that resulted in an alleged economic benefit—John Hancock applying FTCs to its own corporate taxes—was not conducted by John Hancock in any fiduciary capacity. The court further held that FTCs are not ERISA plan assets, because they “are not assets that can be owned by plans under ordinary notions of property law,” but rather, “FTCs are attributes of U.S. tax law, unique to the taxpayer to whom the [tax] Code specifically allows the credit,” which is John Hancock—not its clients. Second, and alternatively, the court held that, even if John Hancock was a fiduciary, it did not breach any duties. The court reasoned that there was no evidence that John Hancock had a subjectively disloyal intent when it complied with U.S. tax law and there were no contractual requirements for it to provide credits to plans based on FTCs. 

The case is Romano v. John Hancock Life Ins. Co. (USA), No. 19-21147, in the Southern District of Florida. The decision is available here.