On each charge leveled in the five-count suit, U.S. District Judge Gary A. Fenner of the U.S. District Court for the Western District of Missouri ruled that plaintiff Jeremy Braden, a participant in Wal-Mart’s profit-sharing/401(k) plan, had not proven the employer and the plan fiduciaries had not properly fulfilled their responsibilities.
In his March 2008 suit (See Wal-Mart Hit with Excessive 401(k) Fee Suit ), Braden charged that the plan had paid $62 million to $92 million in fees since January 2002 in connection with the 10 mutual funds offered as plan investment options. By using participant assets to pay those allegedly excessive fees, Braden charged, the employer and the plan fiduciaries violated the Employee Retirement Income Security Act (ERISA).
Fenner ruled that Braden’s suit contained little more than “conclusory allegations, without any factual support” that Wal-Mart and the fiduciaries had not properly considered a range of options or used a legally defensible process when deciding on the plan’s structure or its investment offerings.
“Wal-Mart and the (Retirement Plans Committee) could have chosen funds with higher fees for any number of reasons, including potential for higher return, lower financial risk, more services offered, or greater management flexibility,” Fenner ruled. “Plaintiff’s dissatisfaction with fees or earnings does nothing to establish a colorable claim that Wal-Mart and the (committee) did not properly investigate available options before making a (plan) decision.”
According to Fenner, who cited Department of Labor (DoL) reports, the Wal-Mart plan had 1,062,033 participants with net assets of $9.89 billion as of January 31, 2007. During the time addressed in Braden's suit, the plan has featured 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund as investment options. Fenner said the mutual funds are all offered through retail class shares and most are actively managed, both of which, the court noted, typically involve higher expenses/fees.
Seven of the 10 mutual funds charge 12b-1 fees, collecting over $26 million in 12b-1 fees over the period involved in the suit, Fenner said, noting that comparable options were available that did not charge 12b-1 fees. The 10 funds' fee structure also includes a revenue sharing charge.
The opinion listed the 10 available funds as
- PIMCO Total Return Fund (Administrative Class);
- Davis New York Venture Fund (Class A);
- Merrill Lynch Equity Index Trust (Tier 1);
- Massachusetts Investors Growth Stock Fund (Class A);
- Ariel Fund;
- Franklin Small-Mid Cap Growth Fund (Class A);
- Merrill Lynch Small Cap Index Trust (Tier 1);
- AIM International Growth Fund (Class A);
- American EuroPacific Growth Fund (Class R4); and
- Allianz RCM Technology Fund (Class A).
In considering the allegations Braden raised, Fenner issued a series of rulings including:
- Braden had no standing to sue for any claims before October 31, 2003, because that is when he began deferring into the plan.
- Braden failed to prove Wal-Mart and the plan fiduciaries did not properly and prudently mange the plan in the participants' best interest. "(Braden) must allege some facts showing Wal-Mart and the (plan committee) failed to conduct research, consult appropriate parties, conduct meetings, or consider other relevant information," the court asserted. "No such allegations are set forth here."
- Insufficient evidence was put forward to prove the allegation the fiduciaries did not give participants and beneficiaries enough information on which they could base investment decisions - including fee comparisons between funds provided by the plaintiff. "These comparisons do not show Wal-Mart and the (plan committee) did not disclose material information that could be harmful to participants, "Fenner wrote. "On the contrary, participants were free to make their own comparisons, to determine whether the fees were unreasonable, and to choose other options outside the Plan. Further, (Braden) cannot transfer (his) burden to show a breach of fiduciary duty by requiring Wal-Mart and the (plan committee) to justify the minutiae of their investment decisions." Wal-Mart and the plan fiduciaries have been under no current legal obligation to disclose the plan's revenue sharing payments - a stance Fenner pointed out has been adopted by the Department of Labor. Fenner also cited a 2008 case, Tussey v. ABB, Inc. , in which a federal judge came to the same conclusion (See ABB Excessive Fee Suit Survives Initial Challenge ).
- Braden likewise failed to prove Wal-Mart's fee arrangements represented prohibited transactions under ERISA. "Plaintiff's opinion that fees were excessive fails to properly allege unreasonable compensation," Fenner wrote. "Plaintiff makes no showing the revenue sharing fees were unreasonable in relation to the services provided. Instead, Plaintiff provides charts comparing the expense ratios of (the 10) funds and their alternatives with no mention of the services provided by the respective options. The availability of less expensive options is insufficient because Defendant could have chosen the more expensive plans for a variety of legitimate and sound reasons."