For the first time since passage of the Employee Retirement Income Security Act in 1974, an ERISA lawsuit over 401(k) plan fees has made it all the way through trial to a judgment. Just five weeks ago Tussey v. ABB Inc. was decided in favor of the plaintiff—to the tune of roughly $35 million.
Which Actions Breach Fiduciary Duty?
The court found that the defendant breached its ERISA fiduciary duties to its 401(k) plans and plan participants. But the nuances of the ruling are likely to be instructive.
The good news for the defendant was that the court found it was not a breach of fiduciary duty to fail to disclosure the existence of a revenue-sharing arrangement between and among its service providers
The bad news was that the court held the corporate defendants (the company and individual officers) did breach their fiduciary duties by their:
- Failure to monitor record-keeping costs
- Failure to negotiate rebates for the plans on the plans’ investment platform
- Imprudent selection of more expensive investment options when less expensive options were available
- Using the plans’ fees (which are passed on to the plans’ participants) to subsidize other corporate services provided to the company.
Additionally, plan service providers were held liable for violating their fiduciary duties by mishandling “float” income derived from the transfers of plan assets under their discretionary control. They were held liable for resulting plan losses of $1.7 million.
Growing Concern Led to New DOL Rules
Over the last several years, increased attention on 401(k) fees has resulted in a line of high-profile ERISA cases being filed against major companies, including this one. This case was one of 15 different cases filed in 2006 by a single law firm.
It has also culminated in new rules on fee disclosures for participant-directed pension plans—including 401(k) plans. The Department of Labor issued its Final Rule to Improve Transparency of Fees and Expenses to Workers in 401(k)-Type Retirement Plans this past February; they become effective July 1, 2012.
The court’s detailed decision casts a bright light on several examples of plan missteps, which other plan fiduciaries and administrators may find useful for creating best practices and actions to hopefully avoid. It actually makes remarkably good reading.