It was the first ERISA case to go to trial, and became as much about how courts measure and price losses to plan participants as it was about sponsors’ fiduciary obligations. (Photo: Shutterstock)
The long odyssey of the first 401(k) excessive fee case appears to be finally ending, as the parties in Tussey v. ABB Inc. have agreed on settlement terms.
The total award will be $55 million, with $20.8 million of that fund going to attorneys’ fees and litigation costs. Three named class representatives in the two ABB 401(k) plans involved in the case will be awarded $25,000, and the remainder will be distributed between plan participants in the class period from December 29, 2000, through December 31, 2007, according to court documents.
The case alleged ABB failed to monitor excessive recordkeeping fees, and charged plan fiduciaries of self-dealing when it mapped investments in Vanguard’s Wellington Fund target-date series to Fidelity’s Freedom Funds. Plaintiffs alleged that Fidelity, the plan recordkeeper, gave ABB a break on pricing for plan services subsequent to the mapping.
The case was twice brought before Court of Appeals for the Eight Circuit and twice denied review by the Supreme Court.
It was the first ERISA case to go to trial, and became as much about how courts measure and price losses to plan participants as it was about sponsors’ fiduciary obligations.
In March of 2012, the U.S. District Court for the Western District of Missouri found the failure to monitor recordkeeping fees resulted in $13.4 million in plan losses, and the mapping to the Freedom Funds resulted in $21.8 million. Attorneys’ fees were set at $13.4 million.
ABB appealed, and in 2014 the Eight Circuit upheld the lower court’s ruling on fiduciaries’ failure to monitor recordkeeping costs, but vacated the decision on mapping of the target-date funds. The appellate court reasoned ABB’s plan documents afforded deference in the decision to map the funds, and said the damages the court arrived at were speculative and more than participants lost, according to an analysis by Kiesewetter, an employee benefits and ERISA-specialist law firm.
The case was kicked back to the district court to reassess damages. In July of 2015, the lower court awarded no damages for the fund-mapping claim. Plaintiffs appealed a second time, and in 2017 the 8th Circuit again vacated the lower court’s ruling on the mapping claim, and again remanded the case for a further consideration of damages.
After an original failure to mediate a resolution, the parties agreed to resolve the matter in November of 2018.
In a statement announcing the $55 million settlement, Jerry Schlichter, founding partner of St. Louis-based Schlichter, Bogard & Denton, said ABB spent millions in litigation.
“We’re in the thirteenth year fighting ABB’s scorched earth approach, through multiple trials and appeals, and over $50 million it spent to avoid compensating ABB employees and retirees,” said Schlichter, who was lead attorney for the plaintiffs.
“We’re now pleased to bring this case to an end, for a settlement amount which is substantially more than the original judgment. In addition, they have already benefitted from reform of the company 401(k) plan, which the court ordered to eliminate excessive fees and self-dealing by ABB to also help ABB employees for the long-term future,” he added.
Participants’ payments from the settlement fund will be calculated using account balances in the Vanguard funds at the date of their removal from the plan in March of 2001 and the quarter ending balances of participants invested in the Fidelity funds during the class period.
ABB had previously been ordered to engage in competitive bidding processes for recordkeeping services, leverage the plan’s size to negotiate lower plan costs, use lower cost share classes when available, and manage the plan exclusively in the best interests of participants.
Today, ABB Inc.’s Retirement Savings Plan has over 12,000 participants and more than $2 billion in plan assets. BrightScope rates the plan among the highest in its peer group for total plan costs, company generosity, and account balances.
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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.
