Hecker Fee Case Prompts Exelon Suit Dismissal

With one eye cast toward the recent closely watched excessive fee case Hecker v. Deere & Co., a federal judge in Illinois has thrown out a similar participant suit involving the Exelon Corp.

U.S. District Judge John W. Darrah of the U.S. District Court for the Northern District of Illinois said the recent Hecker ruling from the 7th U.S. Circuit Court of Appeals (see “Appellate Court Backs Revenue-Sharing Case Dismissal”) dictated his holding in Loomis v. Exelon Corp. In Loomis, Exelon employees argued that the company breached its fiduciary duties to its 401(k) by providing investment options requiring the payment of excessive fees (see “Exelon Fee Case Receives Class Action Status”).

Darrah compared allegations in the two cases and found they were nearly identical, claiming a fiduciary breach under the Employee Retirement Income Security Act (ERISA) by providing investment options requiring the high fees.

Hecker already resolved the issues in favor of the plan and its fiduciaries, according to Darrah. Quoting Hecker, Darrah said, “nothing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund.”

Finally, Darrah ruled that asset-based fee schedules were permissible under Hecker. The case expressly approved of a plan that calculated fees as a percent of assets the investor placed in it, the court said.

The court rejected plaintiffs’ arguments that the case against Exelon was materially different than in Hecker so the appellate case should not control.

The Exelon suit was one of a handful filed in September 2006 by St. Louis attorney Jerome Schlichter alleging that 401(k) plans fees were excessive.

The ruling is available here.



Bond Funds Continue Pull on Assets

Flows into bond funds in November, although somewhat off from the blistering pace of the prior three months, were very robust at $38 billion, according to Strategic Insight (SI), an Asset International company.

SI projected full-year 2009 net flows into traditional bond funds (including VA bond funds) will come in at an all-time record of almost $400 billion (with an additional $50 billion or so into bond exchange-traded funds, or ETFs). The company said this is a remarkable number considering that neither bond fund nor stock fund flows have ever individually topped $300 billion in any one year (see “Bond Mutual Funds On Track for Record Inflows in 2009”).

In contrast, notwithstanding a 4.8% rise in NAVs on average (asset-weighted) in November, stock/hybrid funds received only small inflows, because of continued concerns about the sustainability of the global economic and stock market revival, according to SI’s Highlights of November 2009 Mutual Fund Industry Results. Although flows into international equity funds remained stable at recent modest levels, totaling $12 billion in November, U.S. equity funds suffered (modest) net outflows for the third consecutive month, yielding an overall equity fund net flow total of just about $8 billion.

Assets in money-market mutual funds, where investors are currently earning near-zero yields, declined by an additional $51 billion in November. Flows into target-date funds-of-funds gathered strength in November, rising to $4.2 billion, and flows into risk-based lifecycle funds-of-funds were positive but small, at just under $200 million, in aggregate.

ETF/ETN flow volumes doubled to $15 billion in November, and were driven by diversified Emerging Market, Gold, Natural Resources, Inverse-exposure, S&P 500 Index funds, and China Region funds. Year-to-date through November, ETFs/ETNs have collectively garnered an estimated $87 billion in net new flows.

Among smaller-size managers of long-term funds, those that led in total long-term fund flows in November were TCW, Van Eck, Rafferty Asset Management, Lazard Asset Management, Manning & Napier Advisors, Sentinel Asset Management, Matthews Asian Funds, International Value Advisors, and Claymore Advisors.

Among the largest firms (firms with more than $20 billion in long-term fund assets under management), those garnering the most long-term fund flows were Vanguard ($10.6 billion); PIMCO/Allianz Global ($7.6 billion); Barclays Global Investors ($2.9 billion); JPMorgan ($2.9 billion); Franklin Templeton ($2.5 billion); T. Rowe Price ($2.1 billion); State Street Global Advisors ($1.2 billion); and BlackRock ($1.2 billion).


More information about SI’s fund industry data is available at at www.sionline.com.

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