A federal judge in the Western District of Missouri has ruled in favor of trustees of ABB Inc.'s defined contribution plan in Tussey v. ABB Inc., even though plan fiduciaries "did abuse their discretion" in mapping plan investments from one mutual fund to another, according to court documents.
Judge Nanette Laughrey originally ruled in favor of the plaintiffs in 2012, ordering ABB to pay $21.8 million in losses from the decision to map, or transfer about $120 million of participants' assets in Vanguard's Wellington Fund the Fidelity's target date Freedom Funds.
On appeal, the 8th Circuit Court agreed with the original ruling that ABB fiduciaries had caused participant losses by moving Wellington funds into the Freedom Funds, but remanded the case back to the lower court because the amount of damages awarded was "speculative," according to court documents.
Recommended For You
In reconsidering the case, Laughrey ruled "plaintiffs failed to prove damages consistent with the method of damage calculation suggested by the 8th Circuit," she wrote.
In 2000, Fidelity, which was the record keeper for two ABB defined contribution plans since 1995, proposed a substantial reduction in its recordkeeping fees if the assets in the Wellington Fund were mapped, or transferred to Fidelity's Freedom Funds.
At the time, the Wellington Fund, an actively managed balanced mutual fund invested in both stocks and bonds, had a 70-year track record and an annual performance exceeding Morningstar's benchmark by 4 percent, according to the ruling.
In 2000, Fidelity's Freedom Funds had been in existence for less than five years.
Fees for the Wellington fund were lower than fees for the Freedom Funds, and the Wellington Fund contributed less in revenue sharing fees to Fidelity than the Freedom Funds.
Records show that an ABB trustee to the plan sited "deteriorating performance" for removing the Wellington Fund, but provided no further "discussion" to support that rationale.
In 2001, a trust agreement was amended to remove the Wellington Fund and add the Freedom Funds.
"The Court believes that the ABB defendants knew that removing the Wellington Fund and mapping its assets to the Freedom Funds would result in persistent increased revenues to Fidelity, which ultimately would benefit ABB," wrote Laughrey.
"To achieve a steady and immediate stream of revenue sharing to benefit Fidelity and ABB, the assets of the Wellington Fund had to be defaulted immediately into the Fidelity Freedom Funds," she added.
Though the evidence in the case is "circumstantial," Laughrey ruled that there were "too many coincidences to make the beneficial outcome for ABB serendipitous, particularly considering the powerful draw of self-interest when transactions are occurring out of sight and are unlikely to ever be discovered."
But in spite of concluding that ABB was acting in breach of ERISA's self-dealing prohibitions, Laughrey concluded that plaintiffs "failed to satisfy their burden of proof on the issue of damages."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
