Are plan fiduciaries which offer funds with a wide range of fees immune from excessive fee lawsuits? Until the recent 8th Circuit opinion in Tussey v. ABB, the answer seemed to be yes, as evidenced by the Hecker case. According to ERISA litigator Stephen Rosenberg, the issue should be whether the overall structure of plan choices is optimal for the participants, rather than just whether there are some low-cost choices open to participants who are sophisticated enough to want to avoid the higher-cost options.
In a recent Forbes article, Yale Law School Prof. Ian Ayres — highlighting his research paper on excessive fees in 401(k) plans co-authored with Virginia Law School prof. Curtis Quinn — goes even further. He argues that plan fiduciaries have a duty to remove “dominated funds,” which he characterizes as high-cost, no-value options. He likens these funds to a button on a car that has no beneficial purpose — since drivers don’t have to use it, why include it at all?
So even though the 8th Circuit opinion in Tussey did not specifically overturn Hecker, it did seem to remove the blanket protection of offering low-cost options, finding that the plan sponsor was liable for not investigating, monitoring or negotiating record keeping fees paid to Fidelity, as well as using these costs to subsidize other corporate services. And while the 8th Circuit did not rule that revenue sharing is illegal, the duty to design a plan in the sole interests of the participants seems to come into question when, as in the Tussey case, the plan sponsor mapped assets from a Vanguard Wellington fund at 26 BPs to the record keeper’s proprietary Fidelity Freedom Funds at 82 BPs, resulting in lower record keeping fees.
