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CIGNA's 401(k) Fee Suit Defense: We Obey All Current Laws

May 8, 2007 (PLANSPONSOR.com) - While CIGNA Corporation lawyers' defense against excessive fee and inadequate fee disclosure allegations in the company's 401(k) plan runs to 27 pages, it comes down to this: We did what we were legally required to do.

Chicago lawyer James E. Bayles Jr., of the Morgan, Lewis & Bockius firm, filed the legal document containing the defense against Employee Retirement Income Security Act (ERISA) fiduciary breach allegations in the federal court lawsuit filed by St. Louis law firm Schlichter, Bogard & Denton (See CIGNA Latest Target of 401(k) Fee Suit ). The Schlichter firm got national publicity earlier this year after filing a raft of similar lawsuits alleging ERISA breaches over 401(k) fees.

In the defense document filed in the U.S. District Court for the Central District of Illinois April 25, Bayles not only argued that CIGNA had met its legal disclosure requirements, he asserted that participants bore some responsibility for the level of fees charged because they chose to invest in particular fund options.

"The statute, the implementing regulations, and recent regulatory activity all confirm that ERISA currently requires plan fiduciaries to disclose only limited information about plan fees and expenses," Bayles wrote. "These limited disclosure obligations extend to fees the plan pays directly to service providers out of plan assets, not to all forms of compensation plan service providers receive, such as revenue sharing."

Bayles continued: "…Because the fees associated with each investment option offered by the Plan are fully disclosed in accordance with ERISA and (Department of Labor) DoL regulations, the fees incurred by the Plan are the product of Plaintiffs' and other participants' fully-informed discretionary investment decisions."

To support his contention that current fee disclosures are currently limited, Bayles pointed to recent efforts by the DoL to gather public comments about proposals to make fee disclosure rules more wide ranging to include both direct and indirect plan payments (See Fees Ability , Fee and Expense Disclosures to Participants in Individual Account Plans ).

"Although a broader obligation to disclose fees and expenses has been proposed," Bayles aruged, "it is not now the law, and has no legal effect."

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