In a finding that illustrates the importance of procedure, as well as prudence, plan fiduciaries were found to have breached their fiduciary duties, but paid no damages.
On remand, the district court in Tussey v. ABB ruled on the issues remanded from the 8th Circuit’s mixed 2014 decision. In the most recent iteration (the ABB case was initially filed in 2006; the district court issued its ruling in 2012), the court found the ABB defendants breached their ERISA fiduciary duties when making a fund menu mapping change — but since the plaintiffs failed to provide damages calculations consistent with the 8th Circuit’s narrow mandate — gave the “win” to the defendants.
More Likely Than Not
The district court found it “…more likely than not that ABB decided to remove the Wellington Fund and map its assets into the Fidelity Freedom Funds to benefit ABB,” though it admitted that it couldn’t establish that this was the sole motivation. That said, the court found “…too many coincidences to make the beneficial outcome for ABB serendipitous, particularly considering the powerful draw of self-interest when transactions are occurring out of sight and are unlikely to ever be discovered.”
Specifically, the court acknowledged that “Lifestyle funds were coming into vogue at this time and the Wellington Fund had a short period when it did not perform as well as it had previously,” the court said. “However, given the procedural irregularities including the strong performance of the Wellington Fund during the time period specifically identified in the IPS, ABB’s inconsistent explanations for removing the Wellington Fund and mapping its assets to Fidelity Freedom Funds, the fact that ABB took a substantial part of the PRISM Plan’s assets and put them in an investment that was so new that ABB needed to make an exception to the IPS, and Fidelity’s explicit offer to give ABB a better deal if the Wellington assets were mapped into the Fidelity Freedom Funds, the Court is confident that ABB was conflicted when it chose to take the Wellington Fund assets and put them into the Fidelity Freedom Funds.”
Damage “Goods”
However, when it came to damages, the 8th U.S. Circuit Court of Appeals had left some fairly specific directions on how that was to be calculated — basically an assumption that if the plan had not swapped the Wellington fund for the Fidelity fund that the participants who had been invested in the Wellington fund would have stayed in that fund for the whole period in question — and comparing the difference between that result, and their actual return.
Plaintiffs took issue with this approach — maintaining that precedent dictated that the proper measure of damages would be an assumption that the funds would have been invested in the most profitable of the alternative, with the plan fiduciary bearing the burden of proving that the fund would have earned less than this amount.
To this the district court noted that, even if it were to assume that the performance of the alternative target fund that had the highest rate of return would be the proper measure of damages, “plaintiffs have presented no evidence of what that figure would be.” Moreover, “given that the Eighth Circuit has suggested a measure of damages, the Court finds that measure persuasive and Plaintiffs have failed to present evidence of the only measure of damages that the Eighth Circuit has tacitly approved.”
