Case Sensitive:Limit "Ed"?

Illustration By Dan Page

Dennis Hecker, et al. v. Deere & Company, Fidelity Management Trust Co., and Fidelity Management & Research Co.

7th U.S. Circuit Court of Appeals

 Should the 7th Circuit reconsider its February ruling in favor of the employer—upholding a lower-court decision—in an excessive 401(k) fee case?

The Ruling: The three-judge panel that issued the original decision answered with a resounding no to the rehearing request, noting that none of the court's other jurists asked for a reconsideration, while the original panel members—Judges Daniel A. Manion, Diane P. Wood, and John Daniel Tinde—unanimously agreed to deny the request by lawyers for the 401(k) partic­ipants suing Deere & Company over the fee issue. However, the judges took the opportunity to release a judicial restatement of sorts—a three-page supplementary ruling primarily focused on responding to a friend of the court brief filed on behalf of Secretary of Labor Hilda L. Solis. The Labor Department had expressed concern that the 7th Circuit's original Hecker ­decision—and its application of the protections of ERISA 404(c)—might be applied too broadly.

"The panel's decision in this case rejects the Secretary's interpretation of [ERISA] and her 404(c) regulation…and holds that even 'the imprudent selection of mutual funds with excessively high fees' may fall within the safe harbor if the plan otherwise satisfies the criteria of section 404(c) and 'includes a sufficient range of options so that participants have control over the risk of loss,'" the DoL lawyers maintained in their brief. "The court's ruling does not discuss and therefore appears to have overlooked or misapprehended the principles of deference applicable to the Secretary's interpretation. The court also may not have fully understood the potentially far-reaching ramifications of its decision, which permits fiduciaries to evade accountability for the imprudent selection and maintenance of funds in defined contribution plans, plans that, by our estimates, currently hold approximately $2.46 trillion."

The appellate judges responded just as bluntly: "We return, therefore, to the general point made in the (February) opinion: this [italics in the original] complaint, alleging that Deere chose this package of funds to offer for its 401(k) plan participants, with this much variety and this much variation in associated fees, failed to state a claim upon which relief can be granted." With that, the three jurists effectively left standing their original February decision upholding a lower court's ruling in favor of Deere and against plaintiff/participants who alleged the Deere plan charges excessive fees and did not properly disclose all fees.

The Case: The safe harbor squabble between the DoL and the three appellate jurists centered on precisely how plans qualify for 404(c) protection and exactly how much protection that "shield" offers. The DoL brief quickly staked out Solis' turf, citing a 1974 Congressional report outlining the scope of the Secretary of Labor's authority in defining when participants exercise inde­pendent control. "This regulation…was promulgated after notice and comment under an express delegation of statutory authority, and is therefore legislative rulemaking entitled to the highest level of deference," the government lawyers noted.

The 7th Circuit judges fired back, saying Solis always had the opportunity to generate new rules if she wanted to, but that it had applied the rules currently in place: "But, as the Secretary herself acknowledges, the panel did not ignore any language in the regulation proper. Instead, it did not give the weight that the Secretary believes is due to some language in a footnote to the preamble to the regulation."