This Month Only! >> $20 off and a FREE SHRM tote with your membership and code TOTE2018!
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 12 cities across the U.S. this spring.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
Tussey v. ABB Inc. highlights need to act prudently, exercise diligence over investment options
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
The U.S. Supreme Court on Nov. 10, 2014, declined a petition that it review Tussey et al. vs. ABB Inc. The court’s decision—denying certiorari—means the Eight Circuit's ruling in March 2014, discussed below, remains in effect.
The Eighth Circuit Court of Appeals, on March 19, 2014, upheld one of the first excessive fee rulings in favor of retirement plan participants.
Two years ago, in Tussey v. ABB Inc., et al., No. 06-4305 (Mar. 31, 2012), a federal district court in Missouri awarded plan participants $36.9 million against a 401(k) plan sponsor (ABB Inc.) and third-party administrator, which was the plan’s recordkeeper. The third-party administrator was compensated through revenue sharing, the procedure by which the mutual funds held by the plan paid a portion of their fees to the third-party administrator.
On appeal, the Eighth Circuit Court of Appeals reduced the damages award to $13.4 million by upholding only the portion of the district court’s judgment that was related to excessive fees. In doing so, the Eighth Circuit held that the mutual funds, and not the plan, were properly entitled to the “float” on plan contributions. (“Float” is the interest and income earned on assets between the time contributions are deposited and the time investment orders are placed, or between the time disbursements are requested and when they are paid to participants or beneficiaries.) The court further held that the plan fiduciaries had not breached their duty to plan participants in the selection of plan investment options.
The court also sided with the majority of the other circuit courts of appeal (including the Ninth, Seventh, Sixth, and Third Circuits) in holding that when plan fiduciaries are granted discretionary authority to administer a qualified retirement plan, the grant of discretion extends to selecting the plan’s investment options. Because ABB had acted prudently and exercised reasonable diligence when the investment options were selected, the fiduciaries could not be held liable for the actual investment results.
Of the circuit courts to have considered this issue, only the Second Circuit has failed to extend the discretionary authority standard beyond claims for plan benefits. The Eighth Circuit, however, upheld the district court’s decision that ABB had failed to properly monitor the fees paid to the third-party administrator from the plan investments. ABB had engaged a consultant to monitor the selection of the plan’s investment funds, but had failed to take the consultant’s advice warning that the third-party administrator’s fees were excessive.
The Eighth Circuit remanded the issue of attorneys’ fees to the district court for consideration in light of the appellate court’s decision.
Due Diligence and Prudence
Tussey decision is important to plan sponsors for several reasons. It reinforces the importance of exercising due diligence and prudence in the selection of plan investment options. (Anyone can select profitable investments in hindsight.) So long as the proper consideration is given to the investment selection process, plan fiduciaries should not be liable for the results. Of course, the selection process must still be properly documented. Furthermore, the selection of plan investments should always be monitored on an ongoing basis by a third party.
Finally, the plan document should provide broad discretionary authority to plan fiduciaries in all aspects of plan administration.
Preston R. Burch is an attorney shareholder in the Columbia office of Ogletree Deakins.
© 2014 Ogletree Deakins. All rights reserved. Republished with permission.
Related External Articles
Related SHRM Articles
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Join SHRM's exclusive peer-to-peer social network
SHRM’s HR Vendor Directory contains over 10,000 companies