Recently, the United States District Court for the Northern District of California held that the plan’s fiduciaries were not liable for excessive 401(k) plan fees because they had documented prudent procedures for their decisions. Beverly Kanawi v. Bechtel Corp, (No. C06-05566 CRB, 10/10/2008).
Bechtel Corp. maintained a 401(k) plan which delegated authority for administration to a committee. For over a tenyear period, the Company paid the plan’s investment advisor fees. For the period, November 2003 – February 2004, the fees were paid from plan assets. In September 2006, the plan participants brought a suit under ERISA alleging that the Company, the plan committee, and the investment advisor breached their fiduciary duties by causing the plan participants to incur unnecessary and excessive fees.
In reviewing the unnecessary and excessive fee issue, the Court found that the process used by the fiduciaries in reaching their decisions was determinative. The Court concluded that the plan participants had not shown that the fees were imprudent or unreasonable. More importantly, in finding that the fiduciaries were not liable, the Court stressed that the plan committee met regularly to discuss the plan’s options and also relied on the advice of outside investment professionals. By seeking outside help and meeting regularly, the plan fiduciaries were found to have acted prudently.
Jennifer Watson reminds all plan fiduciaries that “prudence not perfection is required” when carrying out one’s fiduciary duties with regard to a welfare plan or retirement plan. Here again, a court found that regular meetings, seeking outside assistance, and documenting actions can protect a plan fiduciary from fiduciary liability under ERISA.