Compliance April 29, 2010

Unisys, Fidelity Win Excessive Fee Case Dismissal

A federal court has dismissed charges that Unisys Corporation and Fidelity Management Trust Company caused participants in Unisys’ retirement savings plan to pay excessive fees.
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In his opinion, U.S. District Judge Berle M. Schiller of the U.S. District Court for the Eastern District of Pennsylvania found that Fidelity Management Trust Company and other Fidelity defendants were not functional fiduciaries with respect to investment selection for the plan, so no claim could be made against them.

Schiller found that Unisys met the requisite standard of care in its investment offerings to participants. According to the opinion, the plan offered participants 70 investment options with varying fees, risks, and potential rewards—including commingled pools, index funds, bond funds, funds representing various parts of the global economy, and a money market fund—and the fees charged by these funds were disclosed to investors who could choose from among the investment options to create a portfolio tailored to meet their investment objectives.

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Referencing the 7th U.S. Circuit Court of Appeals’ decision in Hecker v. Deere & Co., Schiller said the Employee Retirement Income Security Act does not require fiduciaries to get the best deal imaginable for the plan; it requires them to act carefully, skillfully, prudently, diligently, and solely in the interest of participants and beneficiaries. “While this is not a light duty, it does not support a lawsuit that simply claims the fiduciaries could have done better had they worked harder to leverage their market power,” Schiller wrote.

He also said he failed to see the importance of any alleged system of revenue sharing. “Plan participants were made aware of the fees they would pay for allocating their Plan contributions to particular funds. To whom that money ultimately flowed would seem irrelevant to a participant once it left his wallet,” Schiller wrote. He ruled that Unisys defendants’ failure to disclose information about revenue sharing among the Fidelity defendants cannot form the basis of an ERISA breach of fiduciary duty claim.

Participants accused Fidelity defendants and Unisys defendants of breaching ERISA fiduciary duties by causing plan participants and beneficiaries to pay excessive administrative and investment management fees. In particular, they alleged that the defendants did not take advantage of the plan’s large size to negotiate lower fees or increased services for plan participants and beneficiaries.

The opinion in Renfro v. Unisys Corporation, et.al., is here.

Data & Research April 29, 2010

Affluent Investor Confidence Back on the Rise

Millionaires and affluent investors are more optimistic about the investment environment, according to the latest survey by Spectrem Group.
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The Spectrem Millionaire Investor Confidence Index (SMICI SM) advanced 5 points in April to -1, bringing the index to its highest level since December 2007, when it stood at 8.
                    
Meanwhile, the Spectrem Affluent Investor Confidence Index (SAICI SM), which measures the investment confidence and outlook of households with $500,000 or more in investable assets, rose 3 points in April to -9, which is also the index’s highest since December 2007, when it stood at zero.

“Millionaires and the broader affluent population were both more optimistic about the investment environment in April than at any time since December 2007,” said George H. Walper, Jr., President of Spectrem Group, a in a news release. “The Dow Jones Industrials surpassing the 11,000 mark was clearly a positive for the nation’s wealthiest investors. However, the outlook of both groups remains neutral with some lingering uncertainty about the economy – specifically, unemployment levels,”

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In response to an open-ended question about the one factor most affecting their investment plans, affluent investors in April cited: stock market conditions (21%); the economic environment (16%); household cash flow (8%); household income (7%); retirement (7%); and the political climate (4%). Those choosing stock market conditions fell from 22% in January, the last time this question was asked, and those citing the economy fell from 20%.

Millionaires were slightly more focused on the economy (21%) than the affluent but less focused on stock market conditions (20%).

The Spectrem Affluent Investor Confidence Index (SAICISM) is based on 250 monthly interviews with the financial decisionmakers in households with $500,000 or more in investable assets. The Spectrem Millionaire Investor Confidence Index (SMICI SM) is based on a subset of the overall survey group.

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