Plaintiffs win mixed decision in landmark 401(k) fee case

Appeals court backs fiduciary claim against ABB but reverses decision against Fidelity

Mar 20, 2014 @ 9:52 am

By Darla Mercado

Participants in ABB Inc.'s retirement plan eked out a partial win in their class action against the robotics company on Wednesday when the 8th U.S. Circuit Court of Appeals backed their claim that the company had breached its fiduciary duty. The court, however, also reversed a lower court's ruling on other issues, clearing the record keepers to the plan, Fidelity Management Trust Co. and Fidelity Management and Research Co., of similar charges.

The court found that ABB was responsible for failing to track its record-keeping costs and in doing so had violated its fiduciary duty to its 401(k) participants, confirming a decision reached in the U.S. District Court for the Western District of Missouri in 2010.

“This decision is a victory not just for ABB employees, but for all 401(k) employees and retirees,” said Jerome Schlichter, the attorney representing the plan participants in the suit. “That's because it states that plan sponsors have a strict duty to monitor record-keeping costs and make sure they're reasonable.”

“It supports our position that there should be greater transparency regarding 401(k) plan fees, as well as their use, whether asset-based or not, and who receives them,” Mr. Schlichter added.

The case, Ronald C. Tussey v. ABB Inc., is a landmark suit for the retirement plan industry. It's also the case that put Mr. Schlichter's work on behalf of retirement plan participants on the map — and has been the subject of a number of legal presentations and blogs.

Mr. Schlichter and the plaintiffs initially filed suit in the U.S. District Court for the Western District of Missouri in Jefferson City in 2006. The plaintiffs alleged that ABB and plan service providers Fidelity Management Trust Co. and Fidelity Management & Research Co. had breached their fiduciary duty to plan participants.

The participants claimed that they were paying excessive fees for record keeping and that they should have been entitled to float income generated when plan contributions were made and held briefly in a depository account before being invested.

In 2010, the district court found that ABB had violated its fiduciary duty to the plan when it failed to monitor record-keeping costs, failed to negotiate rebates for the retirement plan from Fidelity and other providers. The court also found that ABB violated its fiduciary duty when it chose more expensive share classes and removed the Vanguard Wellington Fund and replaced it with Fidelity Freedom Funds.

The district court also found that ABB violated its fiduciary duty to the plan when it paid Fidelity “an amount that exceeded market costs for plan services in order to subsidize the corporate services provided to ABB by Fidelity.”

Finally, the district court found that Fidelity breached its fiduciary duty to the plan by failing to distribute float income solely in the interest of the plan. The court also found that Fidelity violated its fiduciary duty to the plan when it transferred the float income to the retirement plan's investment options instead of giving it to the plan.

Both ABB and Fidelity appealed in 2012.

On Wednesday, the 8th Circuit Court of Appeals upheld the district court's judgment and award of $13.4 million against ABB with respect to the record keeping.

But it also vacated a judgment as well as a $21.8 million award against ABB on the participants' investment selection and mapping claims. The appeals court also vacated a joint award of $12.9 million in attorney fees and $489,985 against both ABB and Fidelity.

The mapping issue — in which Wellington funds were replaced with Fidelity Freedom Funds — was remanded to the trial court for further proceedings.

While Fidelity won on the claim of violating its fiduciary duty on float income, the decision was split, with Circuit Court Judge Kermit Edward Bye disagreeing with the other two judges on the panel.

“Unlike the majority, I would conclude that float is a plan asset under these circumstances and Fidelity therefore breached its fiduciary duty of loyalty by transferring float to the depository account for the benefit of investment options and by using float income to pay for bank expenses,” he wrote in a note attached to the decision.

Vincent Loporchio, a spokesman for Fidelity, said the firm was “pleased” with the appellate court's decision.

Calls to ABB spokesman Barry Dillon were not returned.


What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Mar 13



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Cetera reportedly exploring $1.5 billion sale

The company confirmed it's talking to investment bankers to 'explore how to best optimize [its] capital structure at lower costs.'

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients

Legislation requires brokers to act in the best interests of clients.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print