Another Plan Sponsor Win on Revenue-Sharing
September 26, 2011 (PLANSPONSOR.com) – Another plan sponsor has prevailed in a revenue-sharing case – and at the appellate court level.
This time the case was Loomis v. Exelon, a case argued before the 7th U.S. Circuit Court of Appeals, which had previously weighed in on the case that appears to be setting the tone in most of these cases, “Hecker v. Deere & Co.” In Loomis, Exelon employees had argued that the company breached its fiduciary duties to its 401(k) by providing investment options requiring the payment of excessive fees. (see Court Tosses 401(k) Participants' Request for Investment Losses Relief
). Here the 7th Circuit noted that “the district court decided that the current suit is a replay of Hecker and dismissed it on the pleadings,” and, despite some discussion of the issues, upheld the lower court’s dismissal – with prejudice – of the case. Writing for the court, Chief Judge Easterbrook concluded, “Unless Hecker is to be overruled, our plaintiffs cannot prevail” – and was clearly in no mood to overrule its own determination in the Hecker case.
The Department of Labor had argued in a friend of the court brief that, in dismissing the Exelon employees' Employee Retirement Income Security Act fiduciary duty claims, the trial court required an "unduly high pleading standard" not contemplated by ERISA. Solis's also contended the lower court misread the 7th Circuit's ruling in Hecker.
"Wide Range"
In this particular case, the Exelon plan offered 32 funds, 24 of them mutual funds open to the public, with expense ratios ranging from 0.03% to 0.96%. According to the court, the plaintiff-participants contend that the plan administrators violated their fiduciary duties under ERISA by offering “retail” mutual funds, and in “requiring participants to bear the economic incidence of those expenses themselves, rather than having the Plan cover these costs”. Here the court noted that “all of these funds were also offered to investors in the general public, and so the expense ratios necessarily were set against the backdrop of market competition” Additionally, the 7th Circuit was persuaded that participants had available a “wide range” of options. The court also restated its holding in Hecker; “nothing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund.”
Regarding the inclusion of those retail funds on the menu, the court noted that “Both Exelon and the funds distribute literature and hold seminars for the participants, educating them about how the funds differ and how to identify the low expense vehicles. Plaintiffs do not contest the adequacy of the Plan’s and the funds’ disclosures. What plaintiffs contend instead is that, if a pension plan offers only “institutional” vehicles, fees will be lower on average, and that participants tempted by a high-expense fund might save.”