The U.S. Supreme Court has declined to review an appeals court decision in Tussey v. ABB Ltd., a landmark case highlighting the sometimes excessive expenses in 401(k) plans.
The class-action lawsuit, filed in 2006, will now return to the Missouri District Court where the claim originated.
After a 16-day bench trial in 2012, U.S. District Judge Nanette Laughrey awarded $35 million in damages to more than 12,800 participants in ABB's retirement plans. The court found that both ABB and Fidelity breached their fiduciary duty by failing to oversee recordkeeping costs and mapping participants into more expensive investment options, ultimately leading to losses in the value of their plans.
This March, the 8th Circuit Court of Appeals in St. Louis upheld part of the plaintiffs' claim, affirming that Cary, North Carolina-based generator manufacturer ABB breached its fiduciary duty by failing to adequately monitor the fees paid to its recordkeeper, Fidelity Trust.
The appellate court ruled that Fidelity was not liable for $1.7 million in damages resulting from '”float income,” effectively releasing Fidelity from the case.
And by a 2-1 majority, the appellate court also vacated the district court's ruling that found ABB liable for $21.8 million in damages on the question of a share-class selection issue and for “mapping” one investment in the 401(k) plans' menu, Vanguard's Wellington Fund, to the Fidelity Freedom Funds target-date series.
Mapping is the process of defaulting participant funds from an eliminated investment option (in this case Vanguard's Wellington Fund) into a new fund (in this case, the Fidelity Freedom TDFs).
Participants are allowed to opt out of the newly added option, but often fail to monitor their plans closely enough to know the option to do so exists. The plaintiffs in Tussey claimed that ABB's decision to map funds from the cheaper Vanguard option to the more expensive Fidelity TDFs resulted in losses to their retirement assets.
In August, the plaintiffs petitioned the Supreme Court, saying the 8th Circuit's decision to vacate part of the lower-court ruling “deepened an acknowledged conflict in the circuits regarding the standard for reviewing an ERISA fiduciary's compliance with its statutory duties of prudence and loyalty.”
The 8th and 9th Circuit Courts have applied a “deferential standard,” according to the plaintiffs' petition.
The Supreme Court does not explain why it refuses to hear a case, but in a blog post, ERISA attorney Thomas Clark speculated that the high court may have been influenced by the fact that it is already hearing two other ERISA cases this term.
Now, Tussey v. ABB will travel back to Jefferson City, Missouri. Unless a settlement is reached, a retrial date is now expected to be set on the portion of the suit that was sent back.
Participants in the class, represented by the St. Louis law firm Schlichter, Denton and Bogard, have yet to be awarded any of the $13.4 million in damages upheld by the appellate court.
Whatever happens next, “I can guarantee one thing … this is not the last time we will hear about Tussey v. ABB,” Clark wrote.
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