United States: The Latest On The Use Of Retained Asset Accounts To Pay Life Insurance Benefits

In Merrimon v. Unum Life Insurance Co. of America, 2014 WL 2960024 (1st Cir. July 2, 2014), the U.S. Court of Appeals for the First Circuit became the third circuit court to approve an insurance company's use of a retained asset account (RAA) to pay life insurance benefits where the use of an RAA was expressly provided for under the ERISA plan. In so doing, it reversed a $12 million judgment in a class action alleging that the use of RAAs to pay such proceeds violated certain self-dealing and fiduciary duty provisions of the Employee Retirement Income Security Act of 1974 (ERISA).


Plaintiffs Denise Merrimon and Bobby S. Mowrey represented a class of beneficiaries of ERISA-regulated employee welfare benefit plans funded by group life insurance policies issued by Unum. Plaintiffs alleged that Unum violated certain provisions of ERISA in the way it paid life insurance benefits. Instead of paying the benefits in a lump sum, Unum established RAAs for the plaintiffs. Plaintiffs could withdraw all or part of the funds in the account. The accounts were managed by Unum, and Unum paid 1 percent interest on the funds reflected in the account. Plaintiffs alleged that Unum did not place the entirety of the funds in the account. Instead, Unum allegedly kept excess funds in its general account and continued to invest for its own benefit. When a draft was presented to a bank, Unum transferred the funds needed to pay the draft to the RAA account. Plaintiffs liquidated their RAAs, and the accounts were closed.

Plaintiffs claimed that Unum's method of paying claims violated ERISA's prohibition against self-dealing in plan assets and that Unum had violated its fiduciary duties under ERISA. Following discovery in the district court, both parties moved for summary judgment and plaintiffs moved for class certification. The District Court of Maine granted partial summary judgment for plaintiffs on their fiduciary duty claims, but granted partial summary judgment in favor of Unum regarding the self-dealing claims. The district court certified the class and subsequently held a bench trial to determine the damages to which plaintiffs were entitled on their fiduciary duty claims. The district court awarded plaintiffs $12,000,000. Both plaintiffs and defendant appealed to the First Circuit.


As an initial matter, Unum argued that plaintiffs lacked the requisite constitutional standing to bring their claims because they suffered no financial loss as a result of Unum's use of the RAAs. The First Circuit concluded that plaintiffs did have standing because Congress granted ERISA beneficiaries the right to sue for violations of ERISA, thereby creating standing. Although the court found that plaintiffs had a legally cognizable right, plaintiffs still had to show that they suffered a personal harm. The court found that if plaintiffs were able to prove their claims that Unum wrongfully retained and misused their assets, then there would be a tangible harm even if the plaintiffs did not suffer an economic loss. The court based its conclusion on the fact that ERISA was founded on the common law of trusts, where courts have traditionally permitted claims against trustees even where there was no economic loss to the trust.


The First Circuit upheld the district court's dismissal of plaintiffs' claims that Unum engaged in self-dealing in plan assets. Section 406(b) of ERISA states that a plan fiduciary must refrain from "deal[ing] with the assets of the plan in [its] own interest or for [its] own account." See 29 U.S.C. §1106(b)(1). Plaintiffs claimed that the self-dealing occurred when Unum retained the RAA funds in its general account for its own enrichment. The First Circuit held that the RAA funds were not plan assets and so there could be no self-dealing, relying heavily on the Department of Labor (DOL) definition of "plan assets." In its amicus brief, the DOL argued that it considered a "plan asset" to be "generally . . . identified on the basis of ordinary notions of property rights under non-ERISA law." Accordingly, the First Circuit found that under applicable property law, it is the beneficiary who owns the interest in the money in the RAA accounts, not the plan itself. Therefore, the First Circuit held that the beneficiaries' assets were not plan assets. Further, the First Circuit relied on 29 U.S.C. §1101(b)(2), which states that funds held in an insurer's general account prior to the establishment of an RAA are not considered "plan assets." The First Circuit held that it would not make sense if the funds became "plan assets" simply because they became credited to a specific RAA account, even though the funds remained in the general account. Significantly, the court distinguished its decision in Mogel v. Unum Life Insurance Co., 547 F.3d 23 (1st Cir. 2008), on the facts. In Mogel, the plan at issue specified that benefits were to be paid in a lump sum and the insurer had not complied with the plan. Not so in Merrimon.

Fiduciary Duty

Under Section 404(a) of ERISA, "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries." 29 U.S.C. §1104(a)(1). Plaintiffs' core argument was that Unum did not set the interest rate on the RAA to solely benefit participants and beneficiaries, and thus was in breach of its fiduciary duties.

The First Circuit rejected this argument. The court reasoned that Unum relinquished its fiduciary duties once it established an RAA account because Unum followed the precise protocol laid out in the plan. The court stated "once the insurer fulfilled these requirements, its duties as an ERISA fiduciary ceased." Unum's continuing relationship with the beneficiary thus constituted a mere debtor-creditor relationship. The DOL had similarly reasoned in its amicus brief that once a life insurer establishes an RAA to redeem a claim, the fiduciary duties of that insurer are discharged. Accordingly, the setting of the interest rate had nothing to do with plan or asset management. The court held that "when the insurer redeems a death benefit that is due a beneficiary by establishing an RAA, no other or further ERISA-related fiduciary duties attach."


The Second and Third Circuit Courts of Appeal, facing similar facts, have come to substantially the same conclusion as the Merrimon Court in Faber v. Metropolitan Life Ins. Co, 648 F.3d 98 (2d Cir. 2010) and in Edmonson v. Lincoln Nat. Life Ins. Co, 725 F.3d 406 (3d Cir. 2013), cert. denied, 134 S. Ct. 2291 (2014). Merrimon thus adds to a growing body of case law that declines to find that ERISA is violated when an insurer delivers an RAA, rather than a check, to pay a death benefit due under an ERISA plan, so long as the insurer is permitted to do so under the terms of the ERISA plan.

Are there broader lessons to be learned from the decision? Quite possibly, there are. Conventional wisdom holds that ERISA's protections, and ERISA's daunting fiduciary and conflict of interest requirements, all cease to apply at the point at which the promised "benefit" gets delivered. When the promised benefit takes the form of cash, the delivery point can be easily identified, but when something other than cash is promised – here, control over an RAA – the delivery point becomes harder to pin down. Merrimon adds support to the view that, so long as the benefit being promised clearly can consist of an account (rather than cash or its equivalent), delivery is complete when control over the account is delivered. That principle may well crop up in other contexts involving other types of ERISA plans, such as when employer stock (or perhaps an annuity contract) come to be distributed from a 401(k) plan or a similar savings plan. There, too, courts could well be confronted with the same basic question: what is the promised benefit and at what point can it be shown to have been delivered? Whether Merrimon and this emerging line of authority gets extended to such situations, though, remains to be seen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions