March 27, 2014
A panel of the US Court of Appeals for the Eighth Circuit rendered a much anticipated decision in Tussey v. ABB, which is one of the first excessive fee class action lawsuits to go to trial on almost all of the pleaded claims (8th Cir, March 19, 2014). The Eighth Circuit affirmed in part, vacated and remanded in part and reversed in part the district court’s decision.
Defendant ABB sponsored two 401(k) plans for its employees. Fidelity was a recordkeeper and service provider to the plans. Beginning in 2001, the plans offered Fidelity target-date funds (Fidelity funds) as plan investment options and monies that were invested in a Vanguard balanced fund (Vanguard fund) were mapped to the Fidelity funds.
Defendant Fidelity Trust acted as the recordkeeper for the plans. Over time, Fidelity Trust was primarily paid through a revenue-sharing arrangement by which it received a percentage of the plans’ assets from participants’ accounts in a particular fund. Revenue-sharing came from some of the investment companies whose products were selected by ABB for the plans. These investment companies gave Fidelity Trust a percentage of the income they received from plan participants who selected their company’s investment options.
The plaintiffs brought claims on behalf of a class of present and former ABB employees. The district court held that several ABB and Fidelity defendants breached their ERISA fiduciary duties to the plans by:
- Failing to monitor and control recordkeeping fees.
- Paying excessive revenue-sharing fees from plan assets to subsidize other corporate services.
- Mapping (transferring) funds held in the Vanguard fund to the Fidelity funds, in violation of the plan’s Investment Policy Statement.
- Selecting more expensive share classes when less expensive share classes were available.
- Not distributing float income solely in the plans’ interest.
The district court awarded a $36.9 million judgment against ABB Inc. and Fidelity Management & Research Co., including $13.4 million for the recordkeeping claim, $21.8 million on the investment and mapping claims and $1.7 million based on float income. The defendants appealed the district court’s decision to the Eighth Circuit.
The Eighth Circuit upheld the $13.4 million decision against ABB regarding recordkeeping fees paid to Fidelity, but reversed and remanded the $21.8 million award based on losses due to mapping from the Vanguard fund to Fidelity’s funds. The Eighth Circuit also reversed the $1.7 million based on float income.
For a detailed analysis of the Eighth Circuit’s decision, see Practical Law, Eighth Circuit Issues Widely Anticipated Excessive Fee Decision in Tussey v. ABB.