Fidelity wins the high fee battle, but loses the war


Often time the newspaper will have big headlines on the front page when somebody gets busted, but a small paragraph when that same person gets cleared of all charges. That’s the nature of the newspaper business; if it bleeds, it leads.

In 2012, Tussey vs. ABB, plan participants were awarded $36.9 million by a United States District Court. The note was that ABB’s 401(k) plan record keeper, Fidelity, was also a defendant and held liable in its part that the plan was charged excessive fees. Fidelity was ordered to pay legal fees and $1.7 million for breaching its duty on the float rates it charged on plan assets it invested. ABB was paying the bulk of the award, but any advisor or third party administrator competing against Fidelity was trumpeting Fidelity’s liability.

Fast forward two years, the Appeals Court for the 8th Circuit still held ABB responsible for $13.4 million in not monitoring excessive fees, remanded to the District Court to fight over from scratch, the $21.8 million ABB was at fault for using the wrong share classes on $1.4 billion 401(k) plan, and most importantly, vacated Fidelity’s liability.

Fidelity won the battle, but has lost the war, the war of public opinion. While it was cleared of wrongdoing, the fact is that ABB’s 401(k) plan paid excessive fees that Fidelity was helping to run. The fact that Fidelity can skate by because it’s not a fiduciary is irrelevant because the fees were too damn’ nigh and most people don’t know that the mammoth $36.9 million award was just reduced. Fidelity’s competitors may tout the original Tussey decision without detailing the facts that Fidelity won on appeal.

The lesson to be learned here is that plan sponsors are alone in the need to benchmark fees (which ABB did not do) and if you’re a provider charging excessive fees, being a defendant in an excessive fee case that you win on appeal and the plan sponsors loses, isn’t much of a victory. It’s hollow when everyone knows you charged too much.


Published In: Business Torts Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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