On March 19, the Eighth Circuit addressed a long-running case involving alleged fiduciary duty breaches in the administration of 401(k) plans. (Tussey v. ABB, Inc.)  Although the Eighth Circuit emphasized that courts owe deference to choices entrusted by plan documents to fiduciary discretion – and reversed one finding of liability partly on that basis – the decision affirmed a finding that plan fiduciaries in this case are liable for $13.4 million for failing to monitor and assess the reasonableness of the plan recordkeeper’s compensation from revenue sharing.

Tussey was among a wave of plan expense cases filed in 2006; a 16-day trial occurred in 2010.  Two years later, the trial court ruled that:

• The plan’s fiduciaries breached their responsibilities with respect to 401(k) plan fees paid to the plan’s recordkeeper, Fidelity, by (i) failing to monitor the level of fees (particularly fees from revenue sharing); (ii) failing to negotiate rebates from Fidelity or the plan’s investment funds; and (iii) failing to select the least expensive share class for certain funds.  The court noted that, as a result of the compensation that Fidelity received from the 401(k) plan (mostly through revenue sharing from mutual funds), Fidelity was able to provide discounts to ABB for other services, such as health plan administration;
• The fiduciaries also imprudently replaced a Vanguard mutual fund with Fidelity-managed target date funds; and
• Fidelity improperly failed to allocate to the plans the interest earned by brief deposits of contributions and disbursements going to or from investment options (“float”).

The trial court assessed the fiduciaries’ liability to the plans at more than $35 million, ruled that Fidelity owned $1.7 million related to float, and held both the fiduciaries and Fidelity liable for more than $13 million in attorneys’ fees and costs.

The appellate court reversed the trial court in part, remanding the target date fund ruling for reconsideration and exonerating Fidelity with regard to float. But the Eighth Circuit affirmed the $13.4 million judgment against the fiduciaries for failing to ensure that the recordkeeper’s revenue-sharing income was not unreasonable and not subsidizing the provision of other Fidelity services to ABB.
Continue Reading Appellate Court Affirms Fiduciaries’ Liability for Failure to Monitor Revenue Sharing Paid to Recordkeeper