In March 2010, we reported on a federal district court case in which the court ruled in favor of plan fiduciaries and the plan recordkeeper following the commencement of a lawsuit claiming mismanagement of unitized company stock funds and payment of excessive fees to the plan recordkeeper and the plan trustee. After a review of the plan’s process in selecting and retaining its service providers and in operating a company stock fund within the plan’s investment selections, the district court granted summary judgment in favor of the defendants. The district court concluded that the unitized company stock fund was prudent and consistent with industry practice, that the plan adequately advised participants of the risks of investment in company stock and of the fees connected with all plan investments, that plan fees and expenses were regularly monitored and were consistent with industry averages, and that the arrangement with the plan trustee was standard in the industry and did not result in excess fees to the plan trustee. Plaintiffs in the case appealed the district court ruling, and the Seventh Circuit Court of Appeals recently issued a ruling that reversed the district court’s rulings with respect to the unitized stock fund and the reasonableness of the recordkeeping fees. With the respect to the unitized company stock fund issue, the Seventh Circuit reversed the district court’s grant of summary judgment, concluding that while the fiduciaries discussed moving away from a unitized stock fund to purchases of actual stock, the record does not support a conclusion that that defendants ever made a decision to retain the unitized stock fund. The Seventh Circuit sent the case back to the lower court for further consideration of the issue. On the recordkeeper fee issue, the Seventh Circuit ruled, after considering both the opinions of defendants’ consultants and the opinions of plaintiffs’ expert (along with other admissible evidence), that a trier of fact could reasonably conclude that defendants did not satisfy their duty to ensure that the recordkeeper’s fees were reasonable. Accordingly, the Seventh Circuit reversed the grant of summary judgment on this issue and remanded it for further proceedings.
Cases involving 401(k) plan mismanagement and 401(k) fees have generally favored plan sponsors and plan fiduciaries. Whether this case represents a significant setback for plan sponsors and plan fiduciaries in these types of cases is as yet unclear. (George v. Kraft Foods Global Inc., 7th Cir. 2011)