This case came before the Supreme Court of the United States to decide whether the fiduciary obligations of the Employee Retirement Income Security Act of 1974 ("ERISA") apply to an insurance company's annuity contracts, or whether they were within the guaranteed benefit policy exclusion. The defendant-petitioner, John Hancock Mutual Life Insurance Co. and the plaintiff-respondent, Harris Trust & Savings Bank, acting as trustee for a Sperry Rand Corp. Retirement Plan, were parties in a participating group annuity titled Group Annuity Contract No. 50 ("GAC50") In participating group annuity contracts, deposits made to secure retiree benefits are placed with the insurer's general corporate assets instead of applied to the immediate purchase of annuities. The deposits can then be removed from the general account and converted into guaranteed benefits for the policy's retirees. GAC50's assets were likewise made part of Hancock's general account with assets and liabilities recorded in two accounts for bookkeeping purposes. In return for this arrangement, Harris received a pro rata portion of the investment gains and losses stemming from Hancock's general account. Upon request, Hancock would convert GAC50 assets and guarantee all benefits to the specified retiree(s). The liability would be recorded by adding an amount set by Hancock to the "Liabilities of the Fund. This method of conversion would continue as long as the minimum operating level (105% of the Pension Administration Fund) was maintained. Funds in excess of the Minimum Operating Level were referred to as "free fimds." Harris had access to the free funds and used them for two purposes. The primary use of the free funds was to pay additional benefits to retirees with no obligation for Hancock to pay except when free funds existed. The parties specifically referred to these payments as "non-guaranteed benefits." Hancock also allowed Harris to transfer free funds in rollover procedures without incurring any penalties. When Hancock stopped allowing these functions, Harris, without any access to the free funds, filed suit.
DeLeon, Shane C.
"John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank: Guaranteed Benefit Policy Exclusion Holds No Guarantee For Insurers From ERISA's Fiduciary Standards,"
Mercer Law Review: Vol. 46:
4, Article 18.
Available at: https://digitalcommons.law.mercer.edu/jour_mlr/vol46/iss4/18