Monthly Archives: April 2014

Court Affirms That Plan Sponsor Is Responsible For Monitoring Fees Charged To Participants

Plan sponsors should take note:  It is the employer (plan sponsor) who is responsible for monitoring fees charged to participant accounts, and not the record keeper or plan investment providers.  Furthermore, the plan sponsor can be held financially liable for failing to act in the best interests of plan participants, especially when it comes to fees.

In a lengthy ruling handed down last month by the 8th U.S. Circuit Court of Appeals, the court affirmed what the Department of Labor (DOL) has been telling fiduciaries for years.  The DOL position is that the plan sponsor must prudently monitor fees paid to plan providers.  Plan sponsors can’t blame their inaction or ignorance on plan providers.  The court held that the employer (Swiss-based ABB, Ltd) was liable for monitoring fees, and not Fidelity (the plan record keeper). The circuit court upheld the $13.4 million damage award against the employer.  The court determined that ABB failed to complete its due diligence for fees paid to the record keeper.

The lawsuit is known as Tussey v. ABB, which has been winding through the courts since 2006.  Aside from the issue of excessive record keeping fees, the lawsuit alleges breach of fiduciary duty for high investment management fees on mutual fund options, and earnings on “float” interest by the record keeper.  The most recent ruling overturned a lower court decision against Fidelity on float income, and ordered the lower court to reconsider the $21.8 million granted to plaintiffs on excessive mutual fund fees.  However, with respect to record keeping fees, the circuit court upheld the ruling against the employer for failing to monitor and take action on record keeping fees.

In the public sector, especially in the smaller-plan market, we sometimes hear employers say that they rely on the plan provider to monitor fees.  Or, the plan sponsor, upon learning that their fees may be excessive, fails to take action in an expedient and prudent manner to remedy the situation.  While this lawsuit is not over, the courts have thus far been consistent on the fee issue; that the plan sponsor is responsible for monitoring fees, and can be held financially liable for failing to do so.

Gregory Seller Consulting, LLC

All rights reserved.  May not be reprinted in whole or in part without written permission. Provided for information only and is not legal or investment advice.  Plan sponsors should seek their own legal counsel on the impact of court rulings on their fiduciary liability.