UTC Fee Case Judge Delivers Mixed Ruling

August 13, 2007 (PLANSPONSOR.com) - A federal judge in Connecticut has handed 401(k) participants involved in a plan fee suit a mixed victory by throwing out one claim, but allowing them to move forward with another.

Senior U.S. District Judge Warren W. Eginton of the U.S. District Court for the District of Connecticut dismissed plaintiffs’ fiduciary breach claims based on inadequate revenue sharing fee disclosure, but allowed the participants’ in two plans at United Technologies Corp. (UTC) to proceed with charges their fees were too high.

In addition to naming UTC as a defendant, the participants also sued the plans’ investment and administration committees and three UTC executives.

The participants’ complaint included allegations that the defendants failed to take steps to inform themselves of the fees being paid to the service providers.

In ruling on the plaintiffs’ allegations that they were never adequately informed about the plans’ fees, Eginton adopted the reasoning of a federal judge in Wisconsin  who threw out a similar revenue-sharing disclosure case against Deere & Co. thatthe defendants had followed applicable disclosure rules and laws (See Judge Throws Out Deere-Fidelity Fee Suit ).

“The Court will not augment (Employee Retirement Income Security Act) ERISA-fiduciary duties where Congress has already created detailed rules governing such obligation,” Eginton wrote in the ruling.

At the same time, Eginton rejected defendants’ argument that the suit should be thrown out because the plaintiffs had admitted that revenue sharing is an “ubiquitous industry practice.” “The fact that plaintiffs allege that Revenue Sharing is a common industry practice does not curtail their ability to prove that, in this instance, it has resulted in unreasonable fees,” Egington asserted. “The Court will not grant the motion to dismiss on this ground.”

In their suit, participants also alleged that the value of the UTC common stock fund was reduced by the fees and expenses assessed against the assets of that fund. As a result of this reduction, the participants alleged that those who invested in UTC stock had investment returns that substantially underperformed when compared with returns of investors in UTC outside of the plans.

The latest ruling in Taylor v. United Technologies Corp.,D. Conn., No. 3:06cv1494 (WWE), 8/9/07 is  here .

Fidelity Investments was recently hit with another revenue sharing suit by a Connecticut aircraft maintenance and parts manufacturer; Fidelity denied any wrongdoing  (See  Aircraft Parts Co. Sues Fidelity Over 401(k) Revenue Sharing Payments ).

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