FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JERRE DANIELS-HALL; DAVID
HAMBLEN,
Plaintiffs-Appellants,
v.
NATIONAL EDUCATION ASSOCIATION,
a Washington, D.C. corporation;
NEA MEMBER BENEFITS
CORPORATION, a Delaware
corporation; SECURITY BENEFIT
CORPORATION, a Kansas
intermediate stock holding
company; SECURITY BENEFIT LIFE
INSURANCE COMPANY, a Kansas
stock life insurance company;
SECURITY BENEFIT GROUP, a Kansas
holding company and management
and financial services company;
SECURITY DISTRIBUTORS, INC., a
Kansas corporation; DENNIS BERNIE
VAN ROEKEL, Director of NEA
Member Benefits Corporation;
NATIONWIDE LIFE INSURANCE
COMPANY, an Ohio corporation;
WILLIAM BJORK, Director of NEA
Member Benefits Corporation; AL
MANCE, Director of NEA Member
Benefits Corporation;
20271
20272 DANIELS-HALL v. NEA
SHERIDAN PEARCE, Director of NEA
Member Benefits Corporation;
TERRI SANDERS, Director of NEA
Member Benefits Corporation;
SUSAN KUZIAK, Director of NEA No. 08-35531
Member Benefits Corporation;
SARAH BORGMAN, Director of NEA D.C. No.
3:07-cv-05339-RBL
Member Benefits Corporation; OPINION
LILY ESKELSEN, Chairman of the
Board of Directors of NEA
Member Benefits Corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Washington
Ronald B. Leighton, District Judge, Presiding
Argued and Submitted
July 10, 2009—Seattle, Washington
Filed December 20, 2010
Before: Cynthia Holcomb Hall, Diarmuid F. O’Scannlain and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge O’Scannlain
DANIELS-HALL v. NEA 20275
COUNSEL
Derek W. Loeser, Keller Rohrback LLP, Seattle, Washington,
argued the cause for plaintiffs-appellants. Karin B. Swope,
Keller Rohrback LLP, Seattle, Washington, filed the briefs.
Lynn Lincoln Sarko, Tana Lin, and Ian J. Mensher, all of Kel-
ler Rohrback LLP, Seattle, Washington, also were on the
briefs, as was Jeffrey C. Engerman, Los Angeles, California.
Julia Penny Clark, Bredhoff & Kaiser, PLLC, Washington,
D.C., argued the cause for all defendants-appellees and filed
the brief for defendant-appellee NEA. Jonathan Hacker,
O’Melveny & Myers LLP, Washington, D.C., signed the
20276 DANIELS-HALL v. NEA
same brief on behalf of defendant NEA MBC and the individ-
ual defendants. Douglas L. Greenfield and Abigail V. Carter,
both of Bredhoff & Kaiser, PLLC, Washington, D.C., also
were on the brief for defendant NEA, and Bob Eccles,
O’Melveny & Myers LLP, Washington, D.C., also was on the
brief for defendant NEA MBC and the individual defendants.
Nicholas T. Christakos, Sutherland Asbill & Brennan LLP,
Washington, D.C., filed the brief for defendants-appellees
Security Benefit Life Insurance Company, Security Distribu-
tors, Inc., Security Benefit Corporation, and Security Benefit
Group, Inc. Steuart H. Thomsen, W. Mark Smith, and Phillip
E. Stano, all of Sutherland Asbill & Brennan LLP, Washing-
ton, D.C., also were on the brief.
David J. Burman, Perkins Coie LLP, Seattle, Washington,
filed the brief for defendant-appellee Nationwide Life Insur-
ance Company. Charles Platt and Emily Meyers, both of Wil-
mer Cutler Pickering Hale and Dorr LLP, New York, New
York, also were on the brief, as were David Bowker and Mark
Bieter, both of Wilmer Cutler Pickering Hale and Dorr LLP,
Washington, D.C.
Melissa Bowman, U.S. Department of Labor, filed a brief for
the Secretary of Labor as amicus curiae in support of the
defendants-appellees. Nathaniel I. Spiller, Counsel for Appel-
late and Special Litigation, Timothy D. Hauser, Associate
Solicitor, and Carol A. De Deo, Deputy Solicitor of Labor for
National Operations, all of the U.S. Department of Labor, also
were on the brief.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether the National Education Associa-
tion established or maintained an employee pension benefit
DANIELS-HALL v. NEA 20277
plan under the Employee Retirement Income Security Act of
1974 by endorsing and aggressively marketing certain tax-
sheltered annuities.
I
A
Both Jerre Daniels-Hall and David Hamblen (collectively,
“Plaintiffs”) are members of the National Education Associa-
tion (“NEA”) and employees of local public school districts.
Daniels-Hall is an employee of the South Kitsap School Dis-
trict in Washington, and Hamblen is an employee of El
Dorado Union High School District in California.
The NEA is a public employee labor union, consisting of
over 3.2 million teachers, administrators, and other educators
in public schools throughout the United States. The NEA pro-
vides numerous benefits to its members, including insurance
coverage, discounts, and other services. Many of those bene-
fits are provided through NEA’s Member Benefits Corpora-
tion (“NEAMBC”), a wholly owned subsidiary of the NEA.
According to the Complaint, in the 1990s, the NEA,
through the NEAMBC, worked with defendant Nationwide
Life Insurance Co. (“Nationwide”) and, after 2000, with
defendant Security Benefit Life Insurance Company and its
subsidiaries (collectively, “Security Benefit”) to offer the
NEA “Valuebuilder Plan” (the “Plan”) to its members.1 The
Plan is “purported to be a section 403(b) retirement plan.”2
1
The facts in this section are taken from the Complaint. We assume they
are true for the purpose of determining whether the district court erred in
granting Defendants’ motion to dismiss.
2
The Department of Labor (“DOL”) describes section 403(b) retirement
plans as follows:
A tax-sheltered annuity (TSA) program under section 403(b) of
the Internal Revenue Code (Code), also known as a “403(b) plan”
20278 DANIELS-HALL v. NEA
The NEA “selected Nationwide, and then Security Benefit as
the exclusively endorsed” providers of the Plan. After select-
ing Nationwide and Security Benefit, NEA designed certain
annuities in conjunction with them. These annuities were cal-
led “Valuebuilder annuities.” NEA negotiated the terms of the
Valuebuilder annuities, exclusively endorsed the Valuebuilder
annuities as favorable retirement savings vehicles, and aggres-
sively marketed the Valuebuilder annuities to NEA members.
NEA also monitored and managed the Valuebuilder annuities
for its participants.
In exchange for the NEA’s role in marketing the Value-
builder annuities, Nationwide and Security Benefit paid royal-
ties and annual fees to the NEA, took on the salaries of 110
NEAMBC representatives, and contributed to NEA charitable
foundations. NEA’s royalty income from Security Benefit
alone amounted to approximately $2 million per year. Nation-
wide and Security Benefit, in turn, received fees from invest-
ment companies whose mutual funds were made available
through the Valuebuilder annuities.
The NEA did not fully disclose to its members the nature
or amount of the payments it received from Nationwide and
Security Benefit, or the fact that Nationwide and Security
Benefit received payments from investment companies whose
is a retirement plan for employees of public schools, employees
of certain tax-exempt organizations, and certain ministers. Under
a 403(b) plan, employers may purchase for their eligible employ-
ees annuity contracts or establish custodial accounts invested
only in mutual funds for the purpose of providing retirement
income. Annuity contracts must be purchased from a state
licensed insurance company, and the custodial accounts must be
held by a custodian bank or IRS approved non-bank trust-
ee/custodian. The annuity contracts and custodial accounts may
be funded by employee salary deferrals, employer contributions,
or both.
DOL Field Assistance Bulletin No. 2007-02, *1 (July 24, 2007).
DANIELS-HALL v. NEA 20279
mutual funds were included in the Valuebuilder annuities.
Instead, the NEA marketed the Valuebuilder annuities pro-
vided by Nationwide and Security Benefit as the most favor-
able retirement option for its members, despite the fact that
Valuebuilder annuities charged fees that were as much as ten
times those charged on comparable annuity contracts. Plain-
tiffs participated in their school district employers’ section
403(b) retirement plans, and selected Valuebuilder annuities
—instead of other annuities made available by their
employers—because of the NEA’s enthusiastic endorsement.
In essence, Plaintiffs allege that the NEA knowingly duped
them into purchasing unattractive annuities by “creating an
atmosphere of trust and confidence that was exploited by
Defendants for their financial gain.” Plaintiffs purport to rep-
resent a class of more than 57,000 similarly situated NEA
members on whose behalf public school district employers
across the country purchased Valuebuilder annuities totaling
over $1 billion.
B
Plaintiffs’ theory of the case is that by negotiating, endors-
ing, marketing, and promoting the NEA Valuebuilder annui-
ties, the NEA “established or maintained” an “employee
pension benefit plan” within the coverage of Title I of the
Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001 et seq. See 29 U.S.C.
§ 1002(2)(A). Plaintiffs contend that the NEA and NEAMBC
are “plan fiduciaries” under ERISA, and that by, inter alia,
failing to ensure that the fees charged by Nationwide and
Security Benefit in connection with the annuity contracts were
reasonable, NEA and NEAMBC breached their fiduciary
duties. Plaintiffs allege that Nationwide and Security Benefit
were plan fiduciaries as well, and that they also breached their
duties by, inter alia, selecting unreasonably high-cost mutual
funds for inclusion in the Valuebuilder annuities. Plaintiffs
brought this action for breach of fiduciary duties, and other
20280 DANIELS-HALL v. NEA
violations of ERISA, against NEA, NEAMBC, NEAMBC’s
directors, Nationwide, Security Benefit, and Security Bene-
fit’s involved subsidiaries (collectively, “Defendants”), seek-
ing damages, equitable relief, costs, and fees.
In their motions to dismiss the Complaint pursuant to Fed-
eral Rules of Civil Procedure 12(b)(1) and 12(b)(6), Defen-
dants argued that ERISA does not cover section 403(b)
retirement plans that public school systems provide for their
employees. More specifically, Defendants argued that, as a
matter of law, tax-deferred section 403(b) plans cannot be
“established or maintained” by employee organizations such
as the NEA.
The district court was “convinced that if the NEA could
legally establish or maintain” § 403(b) annuity plans, then
Plaintiffs would have “demonstrat[ed] that it did so as a fac-
tual matter.” But the court then explained that “employee
organizations simply cannot, as a matter of law, establish or
maintain § 403(b) annuity plans.” The court concluded that
since “the § 403(b) Annuities” were “not ‘plans’ under
ERISA,” the court lacked subject matter jurisdiction “over the
Plaintiffs’ claim arising out of those annuities.” On May 23,
2008, the court dismissed Plaintiffs claims pursuant to Federal
Rule of Civil Procedure 12(b)(1). Plaintiffs timely appealed.3
3
The Secretary of Labor has primary authority to interpret and to
enforce the fiduciary, reporting and disclosure provisions of Title I of
ERISA. See 29 U.S.C. §§ 1002(2)(B), 1002(13), 1002(14). After oral
argument, we solicited the views of the Department of Labor on the ques-
tion of whether the NEA was legally capable of establishing a plan subject
to Title I of ERISA offering section 403(b) annuities. On September 8,
2009, the Secretary of Labor submitted an amicus brief answering that
question in the negative.
DANIELS-HALL v. NEA 20281
II
A
Before addressing the merits, we must express a disagree-
ment with the district court’s analysis of jurisdiction. It dis-
missed Plaintiffs’ claims for lack of subject matter jurisdiction
because it concluded that the “Valuebuilder Plan” was not an
employee benefit pension plan subject to ERISA. But to ask
whether the alleged Plan is subject to ERISA is a merits ques-
tion. “Subject-matter jurisdiction, by contrast, refers to a tri-
bunal’s power to hear a case.” Morrison v. Nat’l Austl. Bank
Ltd., 130 S. Ct. 2869, 2877 (2010) (internal quotation marks
omitted) (holding that the scope of federal securities law
raises a question on the merits, not an issue of subject-matter
jurisdiction). Whether a particular “Plan” is an employee ben-
efit pension plan, and thus whether a particular defendant is
subject to ERISA, “is [therefore] a question on the merits of
the claim, not an issue of subject matter jurisdiction.” Trs. of
the Screen Actors Guild-Producers Pension & Health Plans
v. NYCA, Inc., 572 F.3d 771, 775 (9th Cir. 2009); see also
Morrison, 130 S. Ct. at 2877. Because Plaintiffs alleged a
cause of action arising under ERISA, it is clear that the dis-
trict court had subject matter jurisdiction pursuant to 28
U.S.C. § 1331. This court has jurisdiction pursuant to 28
U.S.C. § 1291.
However, we need not remand because of the district
court’s error. “Since nothing in the analysis of the court[ ]
below turned on the mistake, a remand would only require a
new Rule 12(b)(6) label for the same Rule 12(b)(1) conclu-
sion.” Morrison, 130 S. Ct. at 2877. Instead, “we proceed to
address whether [plaintiff]s’ allegations state a claim.” Id.
B
We review de novo the district court’s dismissal for failure
to state a claim. Vaughn v. Bay Envtl. Mgmt., Inc., 567 F.3d
20282 DANIELS-HALL v. NEA
1021, 1024 (9th Cir. 2009). We accept as true all well-pleaded
allegations of material fact, and construe them in the light
most favorable to the non-moving party. Manzarek v. St. Paul
Fire & Marine Ins. Co., 519 F.3d 1025, 1031-32 (9th Cir.
2008). We are not, however, required to accept as true allega-
tions that contradict exhibits attached to the Complaint or
matters properly subject to judicial notice, or allegations that
are merely conclusory, unwarranted deductions of fact, or
unreasonable inferences. Id. at 1031. We can affirm “on any
ground raised below and fairly supported by the record.”
Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208, 1226
(9th Cir. 2009); see also Williamson v. General Dynamics
Corp., 208 F.3d 1144, 1149 (9th Cir. 2000) (“If support exists
in the record, a dismissal may be affirmed on any proper
ground, even if the district court did not reach the issue or
relied on different grounds or reasoning.”).
Although generally the scope of review on a motion to dis-
miss for failure to state a claim is limited to the Complaint,
a court may consider evidence on which the “complaint ‘nec-
essarily relies’ if: (1) the complaint refers to the document; (2)
the document is central to the plaintiff’s claim; and (3) no
party questions the authenticity of the copy attached to the
12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448 (9th
Cir. 2006) (quoting Branch v. Tunnell, 14 F.3d 449, 453-54
(9th Cir. 1994)). The court may “treat such a document as
‘part of the complaint, and thus may assume that its contents
are true for purposes of a motion to dismiss under Rule
12(b)(6).’ ” Id. (quoting United States v. Ritchie, 342 F.3d
903, 908 (9th Cir. 2003)).
In addition to the Complaint itself, we have taken into con-
sideration two documents on which the Complaint necessarily
relies. First, we have taken into consideration the prospectus
for the “NEA Valuebuilder Variable Annuity” distributed by
Security Benefit on May 1, 2007. Plaintiffs quoted this pro-
spectus in their Complaint and provided the web address
where the prospectus could be found online. Plaintiffs thereby
DANIELS-HALL v. NEA 20283
incorporated the prospectus into the Complaint by reference.
See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 322 (2007) (explaining that courts ruling on 12(b)(6)
motions to dismiss may take into consideration “documents
incorporated into the complaint by reference”). Second, we
take into consideration information posted on certain NEA
and NEAMBC web pages that Plaintiffs referenced in the
Complaint and included in the record on appeal. Plaintiffs
directly quoted the material posted on these web pages,
thereby incorporating them into the Complaint. Id.
We also have taken into consideration the list of approved
403(b) vendors displayed publicly on the respective web sites
of the South Kitsap and El Dorado School Districts. It is
appropriate to take judicial notice of this information, as it
was made publicly available by government entities (the
school districts), and neither party disputes the authenticity of
the web sites or the accuracy of the information displayed
therein. See Fed. R. Evid. 201 (allowing a court to take judi-
cial notice of a fact “not subject to reasonable dispute in that
it is . . . capable of accurate and ready determination by resort
to sources whose accuracy cannot reasonably be questioned”);
Tellabs, 551 U.S. at 322 (noting that courts ruling on 12(b)(6)
motions to dismiss may take into consideration “matters of
which a court may take judicial notice”); see also In re Amgen
Inc. Sec. Litig., 544 F. Supp. 2d 1009, 1023-24 (C.D. Cal.
2008) (taking judicial notice of drug labels taken from the
FDA’s website); County of Santa Clara v. Astra USA, Inc.,
401 F. Supp. 2d 1022, 1024 (N.D. Cal. 2005) (taking judicial
notice of information posted on a Department of Health and
Human Services web site).
III
[1] ERISA was enacted to protect, inter alia, “the interests
of participants in employee benefit plans and their beneficia-
ries.” 29 U.S.C. § 1001(b). ERISA applies to “any employee
benefit plan if it is established or maintained . . . by any
20284 DANIELS-HALL v. NEA
employer . . . or . . . by any employee organization . . . or by
both.” Id. § 1003(a)(1)-(3).4 “Employee benefit plans” cov-
ered by ERISA come in two types. Id. § 1002(3). The first
type, the “employee welfare benefit plan,” provides medical
benefits and any benefits “other than pensions on retirement
or death.” Id. § 1002(1). By contrast, the second type, the
“employee pension benefit plan,” “provides retirement
income” or “results in a deferral of income [until retirement].”
Id. § 1002(2)(A)(i)-(ii). The second type of benefit plan is at
issue in this case.
[2] An “employee pension benefit plan” is:
any plan, fund, or program which was heretofore or
is hereafter established or maintained by an
employer or by an employee organization, or by
both, to the extent that by its express terms or as a
result of surrounding circumstances such plan, fund,
or program
(i) provides retirement income to employ-
ees, or
(ii) results in a deferral of income by
employees . . . .
Id.5 ERISA imposes strict fiduciary duties on persons who
4
ERISA defines the term “employee organization” to mean “any labor
union or any organization . . . , [or] association . . . in which employees
participate and which exists for the purpose . . . of dealing with employers
concerning an employee benefit plan, or other matters incidental to
employment relationships.” 29 U.S.C. § 1002(4). It is not disputed that the
NEA is an employee organization.
5
The ERISA definition of “employee pension benefit plan” specifies
additional details not relevant to this appeal, involving the methods of cal-
culating contributions, benefits and distribution timing. The provision also
grants the Secretary the power to prescribe rules treating severance pay
arrangements and supplemental retirement income payments as welfare
plans rather than pension plans. 29 U.S.C. § 1002(2)(A)-(B).
DANIELS-HALL v. NEA 20285
administer “employee pension benefit plans.” See, e.g., id.
§ 1002(21)(A) (defining persons qualifying as plan fidu-
ciaries); see also id. § 1101 et seq. (establishing specific fidu-
ciary duties and liability for breaches of these duties).
Although ERISA’s definition of “employee pension benefit
plan” is quite broad, there are several important exceptions.
Section 1003(b), for example, exempts “governmental plans”
from ERISA’s regulatory sphere. Id. § 1003(b)(1) (“The pro-
visions of [Title I] shall not apply to any employee benefit
plan if—such plan is a governmental plan.”). ERISA defines
a “governmental plan” as a plan “established or maintained
for its employees by the Government of the United States, by
the government of any State or political subdivision thereof,
or by any agency or instrumentality of the foregoing.” Id.
§ 1002(32) (emphasis added).
[3] The Department of Labor (“DOL”) has created a sepa-
rate regulatory safe harbor that exempts certain section 403(b)
retirement plans from ERISA’s requirements. This safe harbor
provides that “a program for the purchase of an annuity con-
tract or the establishment of a custodial account described in
section 403(b) of the Internal Revenue Code of 1954 (the
Code), pursuant to salary reduction agreements . . . which
meets the requirements of 26 C.F.R. 1.403(b)-1(b)(3) shall
not be ‘established or maintained by an employer’ as that
phrase is used in [Title I].” 29 C.F.R. § 2510.3-2(f) (emphasis
added). Employers wishing to take advantage of the safe har-
bor must ensure that participation in the plan “is completely
voluntary for employees,” and must comply with the various
requirements set forth in 29 C.F.R. § 2510.3-2(f). Id.6
6
For example, if the “sole involvement of the employer” is “limited to
. . . [p]ermitting annuity contractors (which term shall include any agent
or broker who offers annuity contracts or who makes available custodial
accounts within the meaning of section 403(b)(7) of the Code) to publicize
their products to employees,” the employer will not have “established or
maintained” an ERISA plan. 29 C.F.R. § 2510.3-2(f)(3)(i).
20286 DANIELS-HALL v. NEA
IV
Plaintiffs allege in the first sentence of their Complaint that
they are “participants and beneficiaries of the [NEA] Value-
builder Plan, an Internal Revenue Code section 403(b) tax
deferred annuity program established and maintained by
Defendants NEA and NEAMBC.” Plaintiffs urge us to find
that this “Valuebuilder Plan” is an employee pension benefit
plan subject to ERISA. But before we can make any determi-
nation about whether this Plan is a employee pension benefit
plan, we must figure out exactly what the “Plan” is. And the
central difficulty in this case is Plaintiffs’ inability to explain
what they mean by “Valuebuilder Plan.” Although the Com-
plaint repeatedly refers to the “Plan” as if it were a discrete
entity, the Complaint never defines the Plan in any detail.
Rather than describing what the Plan is, the Complaint
describes what the Plan allegedly does: “the Plan provides
retirement income to employees and results in a deferral of
income by employees for a period extending to the termina-
tion of covered employment or beyond.” But this recital sim-
ply parrots ERISA’s definition of an employee pension
benefit plan. See 29 U.S.C. § 1002(2)(A)(i)-(ii). And instead
of describing the contours of the Plan, the Complaint alleges
who is behind it—namely the NEA and NEAMBC. In short,
although the Complaint alleges that the “NEA and NEAMBC
communicated extensively with Plan participants regarding
the Plan, Plan assets, and Plan benefits, endorsed the Plan,
and aggressively marketed and promoted the Plan,” it utterly
fails to explain what the “Valuebuilder Plan” is.
Nevertheless, if there is any interpretation of the term “Va-
luebuilder Plan” that would render the “Plan” an “employee
pension benefit plan,” Plaintiffs would have successfully
stated a claim capable of surviving a 12(b)(6) motion. Look-
ing at the facts alleged in the Complaint, we conclude that the
“Valuebuilder Plan” could refer to three entirely different
entities: it could refer to (1) the “Valuebuilder Program”
DANIELS-HALL v. NEA 20287
launched by the NEA to help its members save for retirement,
(2) the section 403(b) retirement plans administered by vari-
ous school districts, or (3) the specific “Valuebuilder” annui-
ties offered by Nationwide and Security Benefit. We address
each of these possibilities in turn.
A
[4] The first possible interpretation of the Complaint is that
the “Valuebuilder Plan” refers to NEA’s “ValueBuilder Pro-
gram.” According to its website, “NEA established the NEA
Valuebuilder Program to encourage its members to save for
retirement.” And in their opening brief, Plaintiffs explain that
according to “Webster’s Third New International Dictionary
(1976) . . . ‘program’ refers somewhat circularly to ‘plan,’ and
is generally defined as a ‘plan of procedure: a schedule or a
system under which action may be taken toward a desired
goal: a proposed project or scheme.’ ” However, the Value-
builder Program referenced in the NEA website is not a retire-
ment plan. The “Valuebuilder Program” appears to be the
name of a comprehensive marketing campaign launched by
the NEA and NEAMBC.7 This well-executed marketing plan
was apparently designed to convince thousands of NEA mem-
bers to invest in section 403(b) annuities sold by Nationwide
and Security Benefit. Pursuant to their agreements with the
NEA and NEAMBC, Nationwide and Security Benefit
labeled these annuities “Valuebuilder annuities” and marketed
7
The NEA’s website defines the program as follows:
NEA established the NEA Valuebuilder Program to encourage its
members to save for retirement. [Security Benefit] make[s] avail-
able retirement products under the NEA Valuebuilder Program
pursuant to an agreement with NEA’s wholly-owned subsidiary,
[NEAMBC]. Security Benefit pays an annual fee for services to
[NEAMBC] under the agreement. NEA and [NEAMBC] are not
affiliated with Security Benefit. Neither NEA nor [NEAMBC] is
a registered broker/dealer. All securities brokerage services are
performed exclusively by your sales representatives broker/dealer
and not by NEA or [NEAMBC].
20288 DANIELS-HALL v. NEA
them as part of the “Valuebuilder Program.”8 The NEA, for
its part, trademarked the name “Valuebuilder.” The NEA
apparently intended to establish “Valuebuilder” as a popular
brand name with its members. The NEA could then sell this
brand to broker/dealers such as Nationwide and Security Ben-
efit. After purchasing the brand from NEA, Nationwide and
Security Benefit could sell annuities with names like “The
NEA Valuebuilder Variable Annuity” to NEA members.
[5] In any event, a marketing plan designed to build brand
loyalty is not, under any reasonable definition of the term, a
retirement plan. The Valuebuilder Program certainly pro-
motes various retirement plans, but the Valuebuilder Program
itself does not “provide[ ] retirement income” or “result[ ] in
a deferral of income.” 29 U.S.C. § 1002(2)(A)(i)-(ii). The
Valuebuilder Program is not, therefore, an “employee pension
benefit plan.” Accordingly, insofar as the “Plan” refers to the
NEA’s Valuebuilder Program, Plaintiffs fail to state an
ERISA claim.
B
[6] Given the language of the Complaint, it seems more
likely that Plaintiffs used the term “Valuebuilder Plan” to
refer to the section 403(b) annuity plans offered by Plaintiffs’
school district employers. The Complaint describes the Value-
builder Plan as an “Internal Revenue Code section 403(b) . . .
tax deferred annuity program.” The Complaint also states that
“[t]he Plan is purported to be a section 403(b) retirement
plan.” The lengthy discussion in the district court opinion
about whether the section 403(b) annuity plans were “govern-
8
The prospectus for the NEA Valuebuilder Variable Annuity explains
that the annuity contract “is made available under the NEA Valuebuilder
Program pursuant to an agreement between [Security Benefit] and
[NEAMBC].” Neither the prospectus nor the NEA’s website, however,
indicates that the Valuebuilder Program is anything other than the name
of NEA’s comprehensive marketing plan.
DANIELS-HALL v. NEA 20289
mental plans” indicates that the district court read the “Value-
builder Plan” to refer to the school districts’ section 403(b)
annuity plans. This construction of the term is also more
promising for Plaintiffs, since, unlike the “Valuebuilder Pro-
gram,” the school districts’ various section 403(b) defined-
contribution plans are retirement plans. We must determine
whether they are employee pension benefit plans subject to
ERISA, and whether they were “established or maintained”
by an employee organization—i.e., the NEA.
Section 403(b) of the Internal Revenue Code provides
employees of public schools, churches, and section 501(c)(3)
organizations with the ability to invest in tax-sheltered annui-
ties. 26 U.S.C. § 403(b)(1)(A).9 Employees make pre-tax con-
tributions toward the purchase of these annuities through
salary-reduction agreements, see id. § 403(b)(1)(E), but in
order to obtain preferential tax treatment for those contribu-
tions, the employer must purchase the selected annuities for
its employees, id. § 403(b)(1)(A)(ii). Employers can also
choose to make voluntary contributions to these plans. See id.
§ 403(b)(1); 26 C.F.R. § 1.403(b)-3(a).10 As with optional
9
Section 403(b) is titled “Taxability of beneficiary under annuity pur-
chased by section 501(c)(3) organization or public school,” and provides,
in relevant part:
(1) If
(A) an annuity contract is purchased —
(i) for an employee by an employer described in section
501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee. . .who performs services for an edu-
cational organization. . . , by an employer which is a State,
a political subdivision of a State, or an agency or instru-
mentality of any one or more of the foregoing, or
(iii) for [a minister]. . .
then contributions and other additions by such employer for
such annuity contract shall be excluded from the gross
income of the employee for the taxable year. . .
10
There is nothing in Title I of ERISA that expands the scope or focus
of section 403(b) by allowing employee organizations, or any employers
other than public school districts, churches, or section 501(c)(3) tax-
exempt employers, to establish or maintain section 403(b) plans.
20290 DANIELS-HALL v. NEA
retirement savings plans established by private employers
pursuant to 26 U.S.C. § 401(k), each public school district
devises its own section 403(b) plan, presenting its employees
with a menu of different vendors offering various individual
annuity contracts or custodial accounts for the purchase of
mutual funds.11 See 26 U.S.C. § 403(b)(1), (7). Each school
district determines which vendors and annuity contracts to
include in its menu of options, and provides the list of “ap-
proved” vendors to its employees.12 Employees then choose
the vendor with whom they want to invest and sign individual
annuity contracts with the vendor.
[7] However, while a section 403(b) plan is clearly a retire-
ment plan, and would be considered an “employee pension
benefit plan” if established or maintained by a 501(c)(3) tax-
exempt employer, section 403(b) plans established by school
districts are exempted from ERISA by the “governmental
plan” exception. 29 U.S.C. § 1003(b)(1). As noted earlier,
ERISA defines “governmental plans” as plans “established or
maintained for its employees by . . . the government of any
State or political subdivision thereof.” Id. § 1002(32). It is
undisputed that public school districts are political subdivi-
sions of the various states and are therefore governmental
entities. The only issue is whether the school districts “estab-
lished or maintained” the plans, thus bringing the plans within
the “governmental plan” exception.
11
According to South Kitsap’s website, there were six “District
Approved Vendors” on the South Kitsap list. The El Dorado school dis-
trict website indicates that the district made available eighty-six “403b
Approved Vendors.” Both lists included Nationwide and Security Benefit
as approved vendors.
12
In California, the State Teachers Retirement Board (“STRB”) is
required to “determine” which investment options may be offered consis-
tent with section 403(b). Cal. Educ. Code § 24950(b)(3). Local school dis-
tricts are then free to establish their own menu of section 403(b) products
that are approved for employees who choose to participate in the plan. See
403bCompare (Oct. 12, 2010), https://www.403bCompare.com/
Default.aspx (listing section 403(b) vendors approved by the STRB).
DANIELS-HALL v. NEA 20291
Plaintiffs make two separate arguments that the school dis-
trict employers did not establish or maintain the plans. First,
Plaintiffs allege that the school districts did not make any con-
tributions to their annuity accounts, and suggest that the lack
of direct governmental funding precludes a finding that their
employers’ section 403(b) plans are “governmental plans.”13
However, the structure of a section 403(b) plan necessarily
implicates governmental action, regardless of the presence of
direct governmental funding. The creation of a governmental
employer’s section 403(b) plan generally begins, as here, with
a state law requiring the creation of such plans by a public
school district or some other state or local governmental
agency. See Wash. Rev. Code § 28A.400.250; Cal. Educ.
Code § 24950. Even if funded entirely by employee salary
reduction contributions, the school district must agree to
create the plan, and must set up a system for purchasing the
annuities chosen by each employee, making salary deductions
to pay for the public school employees’ investments in their
choice of section 403(b) annuities and transmitting payments
to the chosen vendor. See, e.g., Cal. Educ. Code
§ 24950(b)(5); Wash. Rev. Code § 28A.400.250(2)-(3). Some
states require the public school district employer to decide
which vendors it wants to include in its plan and to provide
this information to its employees. See Cal. Educ. Code
§ 24950(b)(4). A state might also make determinations about
how and when the marketing of these products will be
allowed. See Wash. Rev. Code § 28A.400.250(5). Finally, in
some instances the school district employer can terminate the
offering of an annuity. See Cal. Educ. Code § 24951. The lack
of governmental funding, when considered in light of the nec-
essary governmental involvement in establishing and main-
taining section 403(b) plans, does not prevent these plans
from falling within the “governmental plan” exemption.
13
Plaintiffs allege that all of the money used to purchase the various
annuity contracts came from Plaintiffs’ deferred salary.
20292 DANIELS-HALL v. NEA
Plaintiffs’ second argument is more creative. Plaintiffs con-
tend the school district employers did not “establish or main-
tain” the section 403(b) plans—and that the plans are
therefore not governmental plans—because the plans are
exempted from ERISA under a different exemption. Specifi-
cally, Plaintiffs allege that the section 403(b) plans fall within
the safe harbor provided in 29 C.F.R. § 2510.3-2(f), which
provides that in certain situations, employer-sponsored sec-
tion 403(b) plans are not, as a matter of law, “established or
maintained” by the employer. Id. The district court was per-
suaded by this argument, and held that the section 403(b)
plans were not governmental plans because they fell within
the safe harbor.
The safe harbor provision applicable to “employee pension
benefit plans,” 29 C.F.R. § 2510.3-2, is part of a DOL regula-
tion intended to “clarif[y] the limits of the defined terms
‘employee pension benefit plan’ and ‘pension plan’ for pur-
poses of title I of the Act . . . by identifying specific plans,
funds and programs which do not constitute employee pen-
sion benefit plans for those purposes.” Id. § 2510.3-2(a). As
explained in Part II, an employer that qualifies for the 29
C.F.R. § 2510.3-2(f) safe harbor is considered not to have “es-
tablished or maintained” an employee pension benefit plan
under ERISA. Such a plan would therefore not be considered
an “employee pension benefit plan” for purposes of Title I.
[8] It is clear, however, from the DOL’s regulations and
opinions that the regulatory safe harbor for “employee pen-
sion benefit plans” was designed for only one subset of tax-
exempt employers: namely, private tax-exempt employers
organized pursuant to 26 U.S.C. § 501(c)(3)—other than
churches—that would otherwise be subject to the require-
ments of Title I. It was never intended to apply to section
403(b) plans provided by public school districts, which are
“governmental plans” and, thus, already exempt from Title I
of ERISA. For example, the preamble to 29 C.F.R. § 2510.3-
2(f) provides that “[c]ertain ‘governmental plans’ defined in
DANIELS-HALL v. NEA 20293
section 3(32) of the Act, and ‘church plans’ defined in section
3(33) of the Act are not affected by the [safe harbor] regula-
tion because they are excepted from the requirements of Title
I of the Act by virtue of section 4(b)(1) and (2) of the Act.”
Definitions and Coverage Under the Employee Retirement
Income Security Act of 1974, 44 Fed. Reg. 23525, 23525 n.1
(April 20, 1979) (emphasis added). Importantly, this DOL
interpretation of its own regulation is afforded even more def-
erence than that which courts normally give agency interpre-
tations of statutes. See Udall v. Tallman, 380 U.S. 1, 16
(1965) (“When the construction of an administrative regula-
tion rather than a statute is in issue, deference is even more
clearly in order.”); see also Auer v. Robbins, 519 U.S. 452,
461 (1997); Kraus v. Presidio Trust Facilities Div. / Residen-
tial Mgmt. Branch, 572 F.3d 1039, 1045 (9th Cir. 2009).14
The IRS came to the same conclusion in 2007, after con-
sulting with the DOL on the interaction between Title I of
ERISA and section 403(b) of the IRC. See Revised Regula-
tions Concerning Section 403(b) Tax-Sheltered Annuity Con-
tracts, 72 Fed. Reg. 41128, 41136 (July 26, 2007). The
consultation “focused on whether the requirements imposed
on employers in these regulations would exceed the scope of
the Department of Labor’s safe harbor regulation at 29 C.F.R.
2510.3-2(f) and result in all section 403(b) programs spon-
sored by tax-exempt employers (other than governmental
plans and certain church plans) falling under the purview of
ERISA.” Id. (emphasis added);15 see also Montoya v. ING Life
14
DOL Field Assistance Bulletin No. 2009-02 states that “[u]nder
ERISA § 4(b)(1) and (2), ‘governmental plans’ and ‘church plans’ gener-
ally are excluded from coverage under Title I of ERISA.” DOL Field
Assistance Bulletin No. 2007-02 makes a similar point: Ҥ 403(b) con-
tracts and custodial accounts purchased or provided under a program that
is [ ] a ‘governmental plan’ under § 3(32) of ERISA . . . are not subject
to Title I.”
15
The preamble to the released section 403(b) regulations explains that
“[t]he [DOL] promulgated a regulation in 1975, 29 C.F.R. § 2510.3-2(f),
20294 DANIELS-HALL v. NEA
Ins. and Annuity Co., 653 F. Supp. 2d 344, 348-50 (S.D.N.Y.
2009) (holding that the DOL’s safe harbor provided in 29
C.F.R. § 2510.3-2(f) does not apply to “governmental plans”).
[9] Plaintiffs cite a Seventh Circuit opinion, Otto v. Vari-
able Annuity Life Insurance Co., 814 F.2d 1127, 1135 (7th
Cir. 1986), as support for their position that the safe harbor
should apply to the school districts’ section 403(b) plans. In
Otto, the court held that a certain plan was not a “governmen-
tal plan” because it fell within the section 2510.3-2(f) safe
harbor. In the DOL’s invited brief, the Secretary argues that
Otto (and the district court in this case) put the cart before the
horse. The Secretary contends that a court should first deter-
mine whether a plan is a governmental plan, and that it should
only proceed to apply the safe harbor if it concludes that a
plan is not a governmental plan. We agree with the Secre-
tary’s reasoning: only private section 501(c)(3) employers
require the additional protection of the regulatory safe harbor,
because governmental and church plans already enjoy sepa-
rate and specific statutory exemptions from ERISA. See 29
U.S.C. §§ 1002(32), (33); id. §§ 1003(b)(1), (2). The Secre-
tary also suggests that the Otto court’s error was harmless
because the result in that case would have been the same
whether the court relied on the “safe harbor” or on the “gov-
ernmental plan” exemption; under either exemption, the plan
in that case was not “established or maintained” by the gov-
ernment employer. Therefore, we conclude that the school
districts’ section 403(b) annuity plans are “governmental
plans” exempt from Title I.” Accordingly, insofar as the
“Plan” refers to the school districts’ section 403(b) annuity
plans, Plaintiffs fail to state a claim upon which relief can be
granted.
describing circumstances under which an employer’s program for the pur-
chase of section 403(b) contracts for its employees, which is not otherwise
excluded from coverage under Title I, will not be considered to constitute
the establishment or maintenance of an ‘employee pension benefit plan’
under Title I of ERISA.” 72 Fed. Reg. at 41136-37.
DANIELS-HALL v. NEA 20295
C
[10] Finally, the “Valuebuilder Plan” could be construed as
referring to the individual Valuebuilder annuities offered by
Nationwide and Security Benefit. According to the district
court’s dismissal order, Plaintiffs claimed that “the annuity
contracts are employee pension benefit plans within the
meaning of ERISA, and that they were established or main-
tained by the NEA, an employee organization.” The district
court agreed with Plaintiffs’ first contention—that the annui-
ties were “plans” within the meaning of ERISA—but ulti-
mately held that the annuities were not “established or
maintained” by the NEA.16 We agree that the Valuebuilder
annuities were not “established or maintained” by the NEA,
and that they are not therefore “employee pension benefit
plans” subject to ERISA.
[11] It is clear from the NEA’s website and the prospec-
tuses offered by Nationwide and Security Benefit that these
annuities were not established or maintained by either Plain-
tiffs’ school district employers or by the NEA. The NEA’s
website explains that the “NEA Valuebuilder Variable Annu-
ity is a flexible purchase payment deferred variable annuity
issued by Security Benefit Life Insurance Company and dis-
tributed by Security Distributors, Inc.” The NEA’s website
directed teachers to “obtain a prospectus from Security Dis-
16
The district court held that “the annuities promoted by the NEA and
offered uniformly to the school district employees are a ‘program’
designed for th[e] purpose [of providing retirement income], and would be
seen as such by a reasonable employee.” By describing the annuities as a
program, it seems the district court considered the Valuebuilder annuities,
when taken together, to constitute a single “program.” However, the
Valuebuilder annuities were discrete investment contracts that were sold
to individual employees by two separate insurance companies pursuant to
various school districts’ section 403(b) plans. Even though the NEA mar-
keted these annuities as part of its “Valuebuilder Program,” the individual
annuities themselves do not constitute a single program. Our focus, at this
stage, is whether each individual annuity constitutes an ERISA plan.
20296 DANIELS-HALL v. NEA
tributors, Inc.” before investing. The prospectus for the NEA
Valuebuilder Variable Annuity explained that “[n]either the
NEA nor NEAMBC is registered as a broker-dealer and does
not distribute the Contract or provide securities brokerage ser-
vices.” We are therefore satisfied that the NEA, which is not
even registered to sell securities, did not “establish or main-
tain” the annuity contracts in question.17 These annuity con-
tracts cannot, therefore, be “employee pension benefit plans”
covered by ERISA. Insofar as Plaintiffs used the term “Value-
builder Plan” to refer to these individual section 403(b) annui-
ties, they have failed to state an ERISA claim.
V
[12] Plaintiffs argue in their opening brief that the district
court’s dismissal order “shelters the Defendants’ improper
activity” However, the district court merely held that the
Defendants’ activity was not subject to ERISA. Plaintiffs
have only themselves to blame for trying to fit the square peg
of Defendants’ alleged misconduct into the round hole of an
ERISA suit. The annuities at issue in this case are not regu-
lated by ERISA, but by the securities laws. And the compa-
nies issuing these securities are regulated by the Securities
and Exchange Commission (“SEC”) and various state insur-
ance regulators, not the Department of Labor. Variable annui-
ties are investment contracts that are considered “securities”
within the meaning of the Securities Act of 1933.18 See 15
17
The fact that Nationwide and Security Benefit paid NEA for the use
of NEA’s trademark, “Valuebuilder,” is irrelevant. The situation can be
analogized to the well-known phenomenon of celebrity endorsements. If
Security Benefit paid Hall-of-Fame quarterback Joe Montana for the use
of his name—perhaps hoping to sell an annuity contract to wealthy Notre
Dame alumni—the resulting “Joe Montana Variable Annuity” would still
be established or maintained by Security Benefit, not Joe Montana. Even
if Joe Montana starred in television commercials endorsing the annuity, it
would make little sense to say that Joe Montana, who might know nothing
about the contract’s details, established or maintained it.
18
Section 2(1) of the Securities Act provides: “When used in this sub-
chapter, unless the context otherwise requires—[t]he term ‘security’
means any note, stock, . . . or . . . investment contract.” 15 U.S.C.
§ 77b(a)(1).
DANIELS-HALL v. NEA 20297
U.S.C. § 77b(a)(1); see also SEC v. Variable Annuity Life Ins.
Co., 359 U.S. 65, 71-73 (1959) (holding that variable annui-
ties are securities that may be regulated by the SEC). Accord-
ingly, Security Benefit filed the NEA Valuebuilder Variable
Annuity prospectus with the SEC. The sale of securities is
subject to the anti-fraud provisions of sections 10(b) and 20(a)
of the Securities and Exchange Act of 1934, 48 Stat. 891, 15
U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R
§ 240.10b-5 (2009). Furthermore, NEAMBC is registered as
an investment adviser with the SEC. See 15 U.S.C. § 80b-3.19
As such, NEAMBC is subject to all the requirements of the
Investment Advisor Act. Id. § 80b-1 et seq. The mere fact that
Defendants are not subject to ERISA’s fiduciary duty and
reporting requirements does not mean that the district court’s
decision sheltered Defendants’ alleged activity. Rather, by
choosing to sue under ERISA, it is Plaintiffs who have simply
pled themselves out of court.
VI
[13] Plaintiffs allege that the NEA, an employee organiza-
tion, “established and maintained” the “Valuebuilder Plan.”
Viewing the Complaint in the light most favorable to the
Plaintiffs, we are satisfied that there is no scenario in which
this “Plan” fits the definition of an employee pension benefit
plan subject to Title I of ERISA. Plaintiffs therefore fail to
state an ERISA claim. The judgment of the district court is
AFFIRMED.
19
The prospectus states that NEAMBC:
promotes the NEA Valuebuilder Program to employers of NEA
members and to NEA members and provides certain services in
connection with the NEA Valuebuilder Program (e.g., evaluating
the effectiveness of the NEA Valuebuilder Program, monitoring
the satisfaction of NEA members with the NEA Valuebuilder
Program, conducting quality assurance work, and providing feed-
back concerning customer satisfaction with the NEA Value-
builder Program).