• Fiduciaries Beware: New Fee Disclosure Rules
  • June 11, 2012 | Author: Rebecca F. Alperin
  • Law Firm: Hinckley, Allen & Snyder LLP - Boston Office
  • New regulations requiring more complete disclosure of retirement plan providers’ fees go into effect on July 1, 2012. As companies’ retirement plan administrators determine how best to digest the myriad new fee information they are about to be presented with, the United States District Court for the District of Western Missouri in Tussey v. ABB, Inc. has issued a harsh reminder that plan fiduciaries must play an active role in understanding, negotiating, selecting and monitoring the fees charged for services against a plan. Tussey highlights for plan fiduciaries the importance of establishing and following meaningful plan procedures and acting in a manner that is solely and exclusively for the benefit of plan participants.

    The Court ruled that the company sponsoring a retirement plan (ABB, Inc.) and its Employee Benefits Committee breached their fiduciary duties, and ordered them to pay, in the aggregate, a judgment of $35.2 million for:

    • Failing to monitor plan recordkeeping costs or to negotiate rebates to offset revenue sharing arrangements with the trust company,

    • Removing an investment fund and replacing it with another investment fund in violation of ABB’s Investment Policy Statement (“IPS”),

    • Selecting more expensive share classes when less expensive share classes were available, contrary to the terms of the IPS, and

    • Paying an amount to the recordkeeper that exceeded the market cost of services so that other ABB corporate services provided by the recordkeeper would be subsidized.

    The Court explained that while the methods the parties used were not per se breaches of any fiduciary duty, the fiduciaries’ failure to conduct basic research and follow the plan’s own IPS, together with their failure to make decisions based solely on the merits of the investments, resulted in a breach of fiduciary duty. As to each of the breaches, the Court ruled that “the plan must be compensated for its losses and any ill-gotten gains by Defendants when they used plan assets for their own benefit.”

    Tussey underscores for retirement plan fiduciaries the importance of adhering to the fiduciary code of conduct set forth in ERISA. That is, a fiduciary must at all times act solely in the best interests of plan participants and beneficiaries, act with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use, follow the terms of the plan, and pay only reasonable and necessary expenses of the plan. Tussey instructs plan fiduciaries to:

    • Meaningfully comply with governing plan documents, which now include the Investment Policy Statement, and consider whether general guidelines are preferable to those more detailed.

    • Monitor the reasonableness of fees charged by service providers by engaging in deliberative processes, documenting decisions with references to the IPS, and replacing or renegotiating such agreements if prudent to do so.

    • Act at all times with undivided loyalty to plan participants and beneficiaries, keeping in mind that fees and cost savings cannot be aggregated across ERISA plans, as each ERISA plan is separate and distinct from others.