In what could be a seminal case for the DC industry, a pretrial conference was scheduled in Minnesota for Jan. 7, 2013 in the suit by Ameriprise DC participants claiming fiduciary breach and prohibited transactions. The trial could begin as early as Dec. 9, 2013, or it could delayed until July 31, 2014 if the defendant’s recommendations are followed. In the lawsuit, which was filed in September 2011, Ameriprise employees claimed that instead of proprietary funds which paid fees to Ameriprise and its subsidiaries, less expensive share classes saving 25 bps could have been offered. Comparable TDFs, specifically from Vanguard, were 74 bps cheaper.
What are the obligations of a fiduciary in selecting share classes? With a myriad of choices — from A shares to six types of R shares, to institutional class shares and even collective trusts or SMAs — does the plan sponsor have to pick the cheapest share class available? Similarly, there will usually be comparable funds that are less expensive, but does the law require the cheapest fund be selected if a prudent process was followed? Compounding the issue is the claim of self-dealing, which may limit the ramifications of the Ameriprise case.
The underlying issues have broad implications, not just for plan sponsors but for the entire industry, which is entering a new era of fee disclosure and awareness. Participants have greater sensitivity about the implications that higher fees have on their ultimate savings. The plaintiff’s bar will certainly be watching closely.
