A recent federal appeals court opinion, in the case of Tussey v. ABB, Inc., available here, could spur companies that sponsor 401(k) plans to pay more attention to the costs directly and indirectly borne by plan participants. The opinion is instructive, refreshingly short for a federal appeals court opinion of some complexity, and an easy read.
One hopes the opinion's core holding is being studied by 401(k) plan sponsors. That holding is that 401(k) plan assets shouldn't subsidize a plan sponsor's receipt of other services from an investment firm. Through that subsidization the plan sponsor and investment firm benefit to the detriment of plan participants, in this case through revenue sharing payments to the investment firm. A plan sponsor may be liable even if the subsidization results through inattention or indifference rather than intention. Arrangements between companies and investment firms in which subsidization potentially exists can be subject to fact-based legal challenges:
"The district court found, as a matter of fact, that the [company's] fiduciaries failed to (1) calculate the amount the Plan was paying [the investment firm] for recordkeeping through revenue sharing, (2) determine whether [the investment firm's] pricing was competitive, (3) adequately leverage the Plan's size to reduce fees, and (4) 'make a good faith effort to prevent the subsidization of administration costs of [company] corporate services' with Plan assets, even after [the company's] own outside consultant notified [the company] the Plan was overpaying for recordkeeping and might be subsidizing [the company's] other corporate services." [Emphasis added.]
The appeals court panel remanded the case for the district court's consideration of holdings apart from the core holding. The plan participants-plaintiffs and the company have filed petitions with the appeals court requesting a rehearing.