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Wednesday, November 7, 2012

Judge Rules for Employees in 401(k) Fee Case

About a year ago, Ron Lieber wrote a Your Money column that described a closely watched case in which employees of a large manufacturing company, ABB Inc., had sued their employer and Fidelity, the manager of its retirement plan, for charging excessive fees.

This spring, a judge for the federal District Court for the Western District of Missouri ruled in the case, finding that ABB had breached its fiduciary duty - meaning that it failed to act in the best interests of the retirement plan and Fidelity's employees - in several ways, including a failure to properly track record-keeping fees paid to Fidelity. The court also found that Fidelity breached its fiduciary duty to ABB's retirement plan by failing to properly allocate interest earned from the overnight investment of plan funds.

The judge, Nanette Laughrey, ordered ABB to pay $35.2 million in damages and Fidelity to pay $1.7 million.

Last week, the judge further ordered ABB and Fidelity to pay $13.4 m illion in attorney fees and costs. In ordering the payment, Judge Laughrey wrote that “ABB breached its fiduciary duties of both loyalty and prudence to the retirement plans, as a result of which it benefited significantly while plan beneficiaries were deprived of millions of dollars. Fidelity, while less culpable, also took plan assets in violation of its fiduciary duty.”

She said the results of the case “may help benefit other plan beneficiaries, in the event of similar litigation, by further clarifying the duty of loyalty and prudence owed by record keepers and employers.”

In an e-mail, Fidelity said it believed the initial ruling in the case “was in error, and it is being appealed.”

Fidelity also said it disagreed with the court's finding that Fidelity and ABB should pay attorney's fees and said it intended to appeal that finding as well, “since the vast majority of the claims against Fidelity were dismissed by the court, as they have been in prior cases.”

Fidelity also said that it provides “valuable services to 401(k) clients for whom Fidelity serves as a record keeper and trustee,” adding, “We believe the fees charged and the compensation collected by Fidelity for those services are reasonable.”

Do you understand the fees your company pays to your retirement plan?