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A. 1. a.(1)(a) i) a) I A 1 a (1)(a) i) a)Final Other  ##  ( ( ` `  #\  PCsP# dd_P  <  i '  SUPREME COURT OF THE UNITED STATES  uB< * ` ` ( ( *(  _Pdd #[ P['CdP# I A 1 a (1)(a) i) a) I A 1 a (1)(a) i) a)-#[ P['CdP# ( ( , , 4 39 C No. 92!1074 4 !   J '9 #o P['Cn&P# ddh Ӌ %kb uB  ddh < #[ P['CdP#192!1074"DISSENT  uBn  $JOHN HANCOCK LIFE INS. CO. v. HARRIS BANK%lb uB  ddh < #[ P['CdP#192!1074"DISSENT  uBn  $JOHN HANCOCK LIFE INS. CO. v. HARRIS BANK`Q؃ C JOHN HANCOCK MUTUAL LIFE INSURANCE  J ' COMPANY, PETITIONER v. HARRIS TRUST  J '% AND SAVINGS BANK, as trustee of the , SPERRY MASTER RETIREMENT 3fTRUST NO. 2  o  hhx  @ on writ of certiorari to the united states court (d of appeals for the second circuit / hxf #[ P['CdP# 3 d [December 13, 1993] -,   #o P['Cn&P#  J& $Footnotes#[ P['CdP# ff X01Í Í01Í Í , , #o P['Cn&P#X` hp x (#%'0*,.8135@8: ԍ FTN    XgEpXFr  ddf < I agree with the Court that Interpretive Bulletin 75!2's exemption of all general account assets from fiduciary requirements is at odds with the text of  ! 401(b)(2) and is therefore not entitled to  uBc deference under Chevron U. S. A. Inc. v. Natural Resources Defense  uB Council, Inc., 467 U.S. 837 (1984). Rejecting the Department of Labor's interpretation of the guaranteed benefit policy exception, however, does not require adopting the Court's extreme approach.` In reliance on that settled understanding, insurers have set up general account contracts with pension plans and have managed assets theoretically attributable to those policies, not in accordance with ERISA's fiduciary obligations, but in6 "   accordance with potentially incompatible state law rules.  J See Mack Boring, 930 F.2d, at 275, n. 17. Most States treat the relationship between insurer and insured as a matter of contract, not a fiduciary relationship. See,  J` e.g., Benefit Trust Life Ins. Co. v. Union Nat. Bank of  J8 Pittsburgh, 776 F.2d 1174, 1177 (CA3 1985) (generally, relationship between insurer and insured is solely a  J matter of contract); New Hampshire Ins. Co. v. Foxfire,  J Inc., 820 F. Supp. 489, 497 (ND Cal. 1993) (implied covenant of good faith and fair dealing does not create fiduciary relationship between insurer and insured under California law). And state law generally requires that the insurer not discriminate among its policy holders.  J See, e. g., N. Y. Ins. Law  ! 4224(a)(1) (McKinney 1985). ERISA, on the other hand, will require insurers to manage what the Court deems plan assets solely in the interest of the participants and beneficiaries of the plan, 29 U.S.C.  ! 1104(a)(1), and will impose a host of other requirements. These conflicting demands will place insurers in a difficult position: Whenever an insurance company takes actions to ensure that under state law, it is treating its policy holders fairly and equitably, it runs the risk of violating ERISA's fiduciary  Jh requirements. Mack Boring, supra, at 275, n. 17.  Although the Court attempts to limit the fiduciary duty to the free funds"it dubs only the free funds plan  J assets, see ante, at 20"the duty it imposes on insurers extends much farther. The free funds are not identifiable assets at all, but are simply an accounting entry in Hancock's books. The amount of the free funds, and  JP hence their management, ibid., depends on the management of all of the assets in Hancock's Group Pension line of business. See Agreed Statement of Facts  ! 43, App. 91. To impose fiduciary duties with respect to the management of the free funds is essentially to impose fiduciary duties on the management of the entire line of business. Although insurers in reaction to today's` "   decision may be able to segregate their assets and allocate certain assets to free funds on specific contracts, that will not help insurers like Hancock in this case who  J now find themselves potentially liable for past actions.F uB ԍ FTN    XgEpXFr  ddf < It will be especially difficult for the lower courts in this case to limit application of fiduciary duties to the free funds, as the Court appears to desire, because the pension plan claims that Hancock breached its fiduciary duty by understating the amount of the free funds. See Amended Complaint  x! 29, 30, 40, App. 55!56, 58!60. Thus, it will not be possible to determine the extent of Hancock's fiduciary duty without first ascertaining whether Hancock violated it.F  The Court's decision may also significantly disrupt insurers' transactions with companies whose pension plans they fund. The Court's interpretation of   ! 401(b)(2) will impose on insurers not only general fiduciary duties under 29 U.S.C.  ! 1104, but also restrictions on prohibited transactions under  ! 1106. The guaranteed benefit policy exception expressly applies to both. See  h! 1101(b) (applying subsections (b)(1) and (b)(2) [f]or purposes of this part, that is, Part 4, which comprises  ! 1101!1114). Indeed, this case concerns alleged violations of both sections. Amended Complaint   ! 40, App. 58. Among the previously innocent transactions now potentially prohibited will be an insurer's investment in stock issued by any of the employers whose pension plans the insurer funds, a lease of a building owned by the insurer to one of those employers, or the purchase of goods or services from any of those employers. See Hearings on Public Law 93!406 before the Subcommittee on Labor Standards of the House Committee on Education and Labor, 94th Cong., 1st Sess., 390!391 (1975) (testimony of the Assistant Secretary of Labor). Thus, large insurance companies that may have sold policies to thousands of pension plans could suddenly find themselves restricted in contracting H"   with the corresponding thousands of employers whose  J goods and services they may require. See id., at 391.  I do not intend to suggest that the Court should give dispositive weight to the practical effects of its decision on the settled expectations of the insurance industry (and its customers, the pension plans, who stand to lose much of the benefit that these contracts presumably offered them). Such considerations are a matter for Congress. But surely the serious and farreaching effects that today's ruling is likely to have should counsel caution and compel the Court to undertake a closer examination of the terms of the statute to ensure that Congress commanded the result the Court reaches.  J As discussed in Part I, supra, I believe Congress did not mandate that result.  9H1 d dy7III؃  2  Application of the standards I have outlined above to GAC50, prior to its amendment in 1977 to allow for payment of nonguaranteed benefits, is relatively straightforward. In its pre1977 form, GAC50 provided for guaranteed benefits in its entirety. Plan participants would be guaranteed to receive the amount of benefits specified in the contract if the contract was in operation when they retired, regardless of the contract's subsequent termination, App. 137, or any other contingency. Hancock's entire general account, not simply the funds Hancock credited to the pension plan, stood behind that guarantee. Moreover, GAC50 provided that all investment return remained in a fund allocated exclusively to the payment of guaranteed benefits, and all of the free funds were available to pay such benefits. We therefore are not faced with a contract that uses a pretextual option of guaranteed benefits to disguise an ordinary investment vehicle. Apart from an asset withdrawal mechanism that imposed a significant charge, the contract provided for no other way to use those funds. See "    J 767 F. Supp. 1269, 1274!1275 (SDNY 1991).l uBh ԍ FTN    XgEpXFr  ddf < GAC 50 made no provision for the rollover mechanism that Hancock allowed the pension plan to use on several occasions to reduce the surplus in the Pension Administration Fund. See 767 F. Supp., at 1274!1275. See also Agreed Statement of Facts  ! 77, App. 96. l  Indeed, that is precisely why this litigation arose. Hancock had not squandered the pension plan's funds, as one might expect in the runofthemill breach of fiduciary duty case. The Pension Administration Fund, and thus the free funds, had grown beyond the parties' expectations. The pension plan, however, was unhappy with the bargain it had struck in its contract. By 1977, it had discovered that it could get cheaper guaranteed benefits and a better return on its investment elsewhere,  Jp see id., at 1273!1274, but GAC50 posed several obstacles to moving the uncommitted funds. Terminating the contract would require the plan to repurchase annuities for the benefits already guaranteed. The repurchase price set by the contract depends on assumptions concerning the interest rate that would be earned on the funds over the term of the annuity. See Agreed Statement of Facts 33!34, 41, App. 89, 90!91 (2!3% for benefits vested before 1968; 5% for those vested after  J 1968).J# uB ԍ FTN    XgEpXFr  ddf < The artificially low interest rate assumptions, ante, at 5, in the contract were last amended in 1968. See Agreed Statement of Facts 105, 111, App. 100, 101. The pension plan alleged that Hancock breached its fiduciary duties by refusing to amend the contract again to take into account changed conditions. Amended Complaint   ! 40(b), App. 58.  Because those interest rates turned out by the late 1970's to be relatively low compared to prevailing market rates, the contractually determined price for purchasing the annuities was correspondingly high and the pension plan considered the option of terminating the contract to be prohibitively expensive. Brief for Respondent 5. Withdrawing assets, as already men m "  Ԯtioned, entailed a significant asset liquidation adjustment. Therefore, before the 1977 amendment the only other way the free funds could be used was to purchase guaranteed benefits for plan participants. It is difficult to see how a policy that provided for nothing but guaranteed benefits could be said not to provide for such benefits in its entirety.  The extent to which GAC50 provides for guaranteed benefits is more complicated, however, because the 1977 amendment discontinued the automatic provision of guaranteed benefits and permitted the payment of NonGuaranteed Benefits. See Agreed Statement of Facts   ! 80, 82, App. 96!97. Proper resolution of this case ultimately depends on the operation and the effect of that amendment. Because the courts below did not discuss its relevance and should be given the opportunity to consider it in the first instance, I would remand.  9H1 d d7IV؃  2  In the judgment of both the Court and the Second Circuit, to the extent that the contract  s! `provides no guarantee of benefit payments or fixed rates of return, it seems to us that [Hancock] should be subject to fidu J& ciary responsibility.' '!  Ante, at 16!17 (quoting 970 F.2d 1138, 1144 (CA2 1992)). Perhaps it should. But imposing that responsibility disrupts nearly 20 years of settled expectations among the buyers and sellers of group annuity contracts. I do not believe that the statute can be fairly read to command that result. I therefore respectfully dissent.