A.G. Edwards Excessive 401(k) Fee Suit Passes First Hurdle

Chief US District Judge G. Patrick Murphy of the US District Court for the Southern District of Illinois rejected a company request to throw out the suit filed by Gerard Boeckman.

Boeckman charged that A.G. Edwards did not do everything it could to minimize the participant fees in its A.G. Edwards, Inc. Retirement and Profit Sharing Plan, including directly hiring its own money managers in order to avoid fund fees altogether or at least opt for less expensive fund institutional shares.

In his ruling, Murphy rebuffed A.G. Edwards’ argument that the suit should be dismissed because Boeckman waived his right to bring fiduciary breach claims by signing a liability release in 2002 when he left the company. Murphy not only said the release did not bar fiduciary breach claims like Boeckman’s,he also agreed with Boeckman that claims that arose after the effective date of the release were not within the scope of the release.

Murphy wrote: “In light of the continuing duty of prudence imposed on plan fiduciaries by ERISA, each failure to exercise prudence constitutes a new breach of the duty, that is to say, a new claim. Thus, allegations that, following the execution of the release, A.G. Edwards continued to breach its fiduciary duty by continuing to pay excessive fees to mutual funds represent new, prospective claims not in existence when the release was executed.”

In the lawsuit, which Boeckman filed on behalf of himself and a proposed class of 401(k) plan participants, Boeckman claimed that A.G. Edwards should have used the plan’s large size, with more than $2 billion in assets, to generally get a better deal on fees.

Specifically, Boeckman alleged that the company could have hired its own money management staff, “thereby avoiding a host of fees associated with mutual fund transactions, including shareholder service fees, transfer agent fees, Rule 12b-1 fees, administrative fees, registration and reporting fees, expenses for reports to shareholders, postage and stationery fees, audit and legal fees, custodian fees, and state and local taxes.”

Otherwise, A.G. Edwards could have purchased institutional shares in the funds, which are typically available only to large or institutional shareholders such as endowments and private retirement plans, instead of retail shares commonly sold to individual or small investors, which entail higher fees than institutional shares.

The case is Boeckman v. A.G. Edwards Inc., S.D. Ill., No. 05-658-GPM, 9/26/06.