There have been a number of highly publicized class action lawsuits by plan participants alleging that their plans have paid excessive fees for plan investments and challenging “revenue sharing” in connection with the selection of particular investments. The suits have also claimed that ERISA required disclosure to participants of the details of these fee arrangements.
One of these suits was recently decided in favor of the plan sponsor, John Deere & Co. and the manager of funds offered by its plans, Fidelity Research, when the judge in the U.S District Court for the Western District of Wisconsin dismissed the entire case. Under the facts, the funds managed by Fidelity Research charged investors asset-based fees, which Fidelity Research shared with the related Fidelity Trust Company, the plans’ trustee. John Deere directly paid the trustee fees, but in an arrangement that has become fairly common, the shared fees were used to pay plan administrative expenses.
The judge ruled that disclosure of the details of the revenue sharing arrangements were not required by ERISA regulations or the general rules on fiduciary responsibility (in fact, the judge agreed that Fidelity Research and Fidelity Trust Company were not fiduciaries of the Deere plans). Underpinning this decision was the fact that the Deere plans had a brokerage option permitting investment in more than 2,500 mutual funds in addition to the more than 20 primary Fidelity mutual funds offered under the plans. The judge found that not all of these funds could have had excessive expenses; therefore, payment of any excessive fees resulted from the participants’ own investment decisions.
Other pending lawsuits challenging 401(k) plan fees may be in different courts or present different facts. This decision, while helpful to plan sponsors, may therefore not be the final word on these issues. See Hecker v. John Deere & Company, 2007 U.S. Dist. LEXIS 45275 (W.D. Wis. 2007).