After 4 weeks of trial, a Missouri federal district court found that ABB, Inc., a manufacturing company, and its benefit committees breached their ERISA fiduciary duties to the 401(k) plans and their participants and are jointly and severally liable for over $35 million to the plan. (See, Tussey v. ABB, Inc., Dist. Mo. 3/31/12)  Many of the actions leading to liability may sound uncomfortably familiar to plan committee members and advisors.

Key findings by the trial judge include:

• The committees, as plan fiduciaries, failed to monitor the reasonableness of expenses paid to Fidelity Trust for recordkeeping, principally through revenue sharing.  Reviewing expense ratios of the investment funds was not enough.  The committee is expected to know how much revenue sharing and hard dollars are expended for recordkeeping and whether the amount is competitive with recordkeeping fees for other plans.
• The investment policy statement (IPS) is a "plan document" to be followed and the committee did not follow the IPS in changing investment options and in changing funds for self-serving purposes.  A Vanguard Wellington fund was replaced by Fidelity Freedom Funds, but not supported by the IPS.
• Share classes of investment funds with higher expenses were chosen when less expensive share classes were available.
• The HR officer and fiduciary permitted plan recordkeeping fees to subsidize other services Fidelity provided to other ABB plans and ABB, Inc. itself even after learning that Fidelity viewed the plan fees as the reason for providing other "free" services to ABB.
• Fidelity breached its ERISA fiduciary duties by failing to deliver "float" income solely for the interests of the plan (using the "float" to pay its own expenses) and transferring "float" income to investment options rather than the plan.  Fidelity is liable for $1.7 million in plan losses.

In 81 pages, the court's opinion describes in detail many actions it views as failing in meaningful analysis and evaluation, failing to follow plan documents such as the IPS, failing to follow up the findings of an advisor (Mercer) that the plans were overpaying fees, and making decisions not in the best interests of the plan.  While pointing out that use of revenue sharing to pay recordkeeping costs and accepting "free" services are not per se violations, the decisions to do these must be viewed in the context of the plans, plan documents and their relationships.

With the fee disclosure rules nearing effectiveness, it is even more important that plan fiduciaries understand the fees, including revenue sharing, being paid by and through plans, particularly 401(k) plans, examine the process and procedures for evaluating and approving investment options and provider arrangements, and the documentation of these actions.