A well-known 401(k) fee litigation firm has asked the U.S.
Supreme Court to review key pieces of an appellate court’s decision in Tussey
v. ABB, Inc. In technical terms, the law firm of Schlichter, Bogard &
Denton has petitioned the U.S. Supreme Court for a “writ of certiorari” in Tussey
v. ABB, Inc. As the firm’s founder and managing partner, a writ of certiorari
is an appeals request submitted to a superior court, asking the superior court
to use its discretion to review all or part of a decision handed down by a
lower court.
The firm is asking the U.S. Supreme court to review a recent
decision from the 8th U.S. Circuit Court of Appeals, which vacated a portion of
a previous district court judgment that found for the plaintiffs against
defendants ABB and Fidelity. The case has a complicated procedural background,
but the primary matters at hand involve accusations that ABB fiduciaries
breached their duties to the company’s 401(k) plan by failing to diligently
investigate the plan’s recordkeeper or the plan’s investment fees and
recordkeeping costs.
Schlichter says ABB Inc., a power and automation technology
company, did not reasonably negotiate for rebates from the investment companies
whose funds were offered in the plan. Schlichter claims that when plans pay too
much for investment services and plan administration, participants often end up
subsidizing other corporate services received from the recordkeeping provider,
such as payroll processing or health plan administration. It’s an argument
applied widely across 401(k) fee litigation cases, and one that causes
significant stress among mega plan sponsors and providers alike due to the
potential class action status of plaintiffs and the large dollar figures at.
Indeed, the lower court in Tussey v. ABB originally
awarded $13.4 million to the ABB plan participants, but the decision was
quickly appealed to the 8th Circuit. This current petition to the Supreme Court
comes after the 8th Circuit vacated key parts of the original pro-ABB
decision—essentially tempering the damages assessed against ABB and Fidelity.
While the appeals court agreed that ABB and its plan
fiduciaries failed to adequately monitor recordkeeping fees, it decided other
parts of the decision were in error. Namely, the appeals court decided ABB did
not further breach its fiduciary duties when it decided to drop the Vanguard
Wellington Fund as an investment option to be replaced with Fidelity's Freedom
Funds—using the assumption that plan fiduciaries must be given discretion when
choosing investment options. To punish the plan fiduciaries for picking the
Fidelity funds over the Vanguard fund would amount to punishing the fiduciaries
for not predicting which fund would perform better in the future, the court
ruled.
Schlichter contends it is inappropriate to give such
discretion to plan fiduciaries that have already been proven by the same
appeals court to have breached their fiduciary duty. The plan fiduciaries have
already been shown to have made decisions that were not in the participants'
best interest. Schlichter argues that the ABB fiduciaries, were they acting prudently,
would have picked the Vanguard fund if they were truly considering the fees and
return potential of the fund.
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