Feb 19, 2009 (PLANSPONSOR.com) -- We got another verdict on those infamous revenue-sharing lawsuits last week.

Not a verdict in the sense of a Perry Mason trial, perhaps - but we did have two sides presenting their case to a judge who, once again, basically felt that the plaintiffs didn't make their case.

Personally, I find this entire class of revenue-sharing lawsuits abhorrent.   Not that I don't think there are some real issues to be had with regard to how some plans are being charged, and how some of those revenue-sharing arrangements are perhaps being abused.   Rather, I resent them because, in large part, I think the cases brought to date—at least as I understand the facts—are probably not where the real problems lie.   They do, however, represent huge piles of money—and if you're a contingent-fee lawyer, that is (to borrow Willie Sutton's famous phrase) "where the money is."

Consequently, back in 2007, when U.S. District Judge John Shabaz of the U.S. District Court for the Western District of Wisconsin tossed—and, IMHO, "trashed"—the case brought against Deere & Co.,   it felt like a vindication of sorts—at least until I studied the rationale Judge Shabaz relied on.   Good decision, bad law, IMHO (see " IMHO: Fighting Words ").   But hey, it beats a bad decision, right?

In the intervening months, the plaintiffs appealed Judge Shabaz's verdict, of course, and other experts—notably the Department of Labor—also weighed in (see " IMHO: The Letter of the Law ") and managed to express the application of the law in a manner consistent with what my nearly three decades of experience in the field had taught me to believe.

However, my reading of last week's decision by Judge Diane P. Wood of the 7th U.S. Circuit Court of Appeals (see " Appellate Court Backs Deere Case Dismissal "), suggests that we're still making the "right" decision—but for the wrong reasons, IMHO.

For example, based on my reading of the case, if I were advising a plan sponsor on how to stay out of court (or at least on how to win once dragged there), based on the  7th Circuit's ruling in Deere:

I would advocate giving participants LOTS of fund choices ¹ —via a brokerage window if possible—and I would make sure that there were at least some low-cost fund choices available via that window ² .  

I wouldn't concern myself at all with whether the core menu was comprised strictly of a single provider's offerings ³ , nor would I concern myself overly much with the fees paid by the plan/participants—so long as those fees were paid via mutual fund expense ratios that are the same as those paid by investors in the retail market. ⁴

I would be comfortable telling participants with a straight face that the employer was paying all the administrative fees of the plan—even if those fees were all really being paid via the aforementioned mutual fund expense ratios ⁵ (nor would I be ashamed to admit that I thought that there were no administrative fees—because then, even if I was paying nothing, well, at least I couldn't be accused of distorting the facts). ⁶

Oh, and as for the protections of 404(c)—I would just make sure that participants are given the opportunity to transfer their balances between all those investment options and given prospectuses about those options that include details on the expense ratios of those choices. ^7,8  Better yet, you won't even have to worry about being prudent in the selection of fund options for the plan, because, according to the recent ruling, that safe harbor extends to that decision ⁹ —as well as pretty much any issue a participant might raise regarding their retirement account investments.

None of this, of course, is how I actually see the law, or the obligations of plan fiduciaries to uphold their responsibilities.   On the other hand, on any given day, it might be - as it clearly was - good enough to persuade a sympathetic jurist—or to overpower impotent plaintiff arguments.  

But, IMHO, winning for the wrong reasons doesn't necessarily mean you're right.

¹ "[E]ven if, as plaintiffs urge, there is a fiduciary duty on the part of a company offering a plan to furnish an acceptable array of investment vehicles, no rational trier of fact could find, on the basis of the facts alleged in this Complaint, that Deere failed to satisfy that duty."

² "The 2,500 mutual funds available through BrokerageLink had fees ranging from .07% to 1%. Any allegation that these options did not provide the participants with a reasonable opportunity to accomplish the three goals outlined in the regulation, or control the risk of loss from fees, is implausible…."

³ "[M]any prudent investors limit themselves to funds offered by one company and diversify within the available investment options….We see nothing in the statute that requires plan fiduciaries to include any particular mix of investment vehicles in their plan.…We therefore

question whether Deere's decision to restrict the direct investment choices in its Plans to Fidelity

Research funds is even a decision within Deere's fiduciary responsibilities."

⁴ "As the district court pointed out, there was a wide range of expense ratios   among the twenty Fidelity mutual funds and the 2,500 other funds available through BrokerageLink….Importantly, 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…It is untenable to suggest that all of the more than 2500 publicly available investment options had excessive expense ratios."

⁵ "The fact that there were no additional fees borne by Deere is immaterial. While Deere may not have been behaving admirably by creating the impression that it was generously subsidizing its employees' investments by paying something to Fidelity Trust when it was doing no such thing, the Complaint does not allege any particular dollar amount that was fraudulently stated."

⁶ "The Complaint does not allege that the representation in the SPD supplement—that Deere paid the administration expenses for the Plans—was an intentional misrepresentation. To the contrary, plaintiffs have since submitted evidence with their Rule 59(e) motion showing that Deere believed that Fidelity Trust's services were free."

⁷ "[T]o the extent participants incurred excessive expenses, those losses were the result of participants exercising control over their investments within the meaning of the safe harbor provision."

⁸ "If particular participants lost money or did not earn as much as they would have liked, that disappointing outcome was attributable to their individual choices.   Given the numerous investment options, varied in type and fee, neither Deere nor Fidelity (assuming for thesake of argument that it somehow had fiduciary duties in this respect) can be held responsible for those choices."

⁹ "Plaintiffs would like us to decide whether the safe harbor applies to the selection of investment options for a plan, but in the end we conclude that this abstract question need not be resolved to decide this case. Even if § 1104(c) does not always shield a fiduciary from an imprudent selection of funds under every circumstance that can be imagined, it does protect a fiduciary that satisfies the criteria of § 1104(c) and includes a sufficient range of options so that the participants have control over the risk of loss…."

Nevin E. Adams