And he did so "with prejudice and
costs."
"[T]he complaint is a rambling 38 page collection
long on legal argument, public policy rhetoric and
repetition, but vague in its allegations of facts
which might be relevant to the claims alleged."
In an even more succinct dismissal in February
(two-pages), U.S. District Judge John Darrah said that
the 401(k) participants in the Exelon Corp. plan failed
to make a "link between the administrative fees they
were charged and their market-based losses"
(see
Court Tosses 401(k) Participants' Request for
Investment Losses Relief
).
Not that there weren't elements of plan structure
that might raise eyebrows in some quarters in the most
recent case—the agreement between the plan sponsor (Deere
& Co.) and the provider (Fidelity) to limit the fund
menu to funds managed by Fidelity, for one thing (23 of the
26 funds on the menu were Fidelity's).
And then there is the judge's matter of fact
assertion that "Defendant Deere could have negotiated lower
fees with Fidelity Research, or could have selected
different funds from different providers with lower rates
but has made no effort to do so."
One could readily imagine those exact words being uttered
as a stark condemnation of a fiduciary that had failed to
live up to its duty—but this court recounted it as a
statement of fact, nothing more (and, for the record,
there's no fiduciary bar to doing what Deere did, so long
as their motivations were solely in the best interests of
plan participants/beneficiaries, and the fees and services
so obtained were reasonable).
Besides, the plan did offer access to a brokerage window.
If participants wanted something beyond a Fidelity
offering, they could tap into some 2,500 other
alternatives, according to the ruling.
"Reasonable" Doubts?
Furthermore, IMHO, Judge Shabaz was too willing to
conclude that, since Deere participants were paying the
same for their mutual investments as other investors, the
fees must be reasonable.
On the surface, the fees weren't obscene—fees ranged
from .07% for the Spartan Fund to 1.01% for the Diversified
International Fund, according to the ruling.
Still, it's one thing to conclude that those fees were
reasonable; quite another, IMHO, to assume that they are
reasonable simply because others (and retail investors, to
boot) are willing to pay them.
Still, Shabaz was clear in refuting the notion that
the plan had any obligation to delve into the specifics of
any revenue-sharing arrangement (
"recent proposals to amend the regulations…to require
revenue-sharing disclosures in annual reports make it
apparent that present regulations do not require it"
), and clearer still in rebuffing the notion that there was
an obligation to share those details with plan participants
(
"Nothing in the statute or regulation directly requires
such a disclosure"
).
Additionally, Shabaz concluded that the fee
disclosures included in the Summary Plan Descriptions
(SPDs) and prospectuses were sufficient for participants to
make informed investment decisions—or at least that
requiring more would
"require judicial expansion of the detailed disclosure
regime crafted by Congress and the Department of Labor
pursuant to its statutory authority."
While he acknowledged that some of the issues
raised were undergoing reconsideration
(1)
, when all was said and done, he found no merit in the
claims, concluding in effect that it appeared
"beyond a reasonable doubt that the plaintiffs can
prove no set of facts in support of the claim which would
entitle the plaintiffs to relief."
One should be cautious in drawing too many
conclusions from this result, of course.
In the same way that lawsuits contain only one side
of the situation, dismissals all too often shuttle aside
potentially triable issues, not because the issues aren't
there, but because plaintiff's counsel didn't make an
effective presentation.
Still, on the issue of revenue-sharing disclosures, I think
Shabaz got it right.
When the cases were first filed I, perhaps like many
of you, was no doubt surprised that these kinds of
allegations were applied to some of the largest 401(k)
plans in the nation—plans that, by any reasonable
assessment, probably had the staff and plan-size "clout" to
get such matters "right."
Of course, they also had the size that makes for
"deep pockets" and public brand(s) that typically eschew
the kind of publicity that accompanies a lawsuit and
facilitates a quiet settlement.
This time, however, it seems that they have a
willingness to fight back.
(1)
"A review of the report confirms that the revenue
sharing issue raised by plaintiffs' complaint is a
matter of policy concern within the Department of
Labor. It also unequivocally confirms that present
regulations do not require disclosure of the
information."