Pay Check
A court found ABB Inc. and Fidelity Management Trust Company breached some fiduciary duties owed to participants in ABB’s retirement plans.
Specifically, U.S. District Judge Nanette K. Laughrey of the U.S. District Court for the Western District of Missouri found the ABB defendants violated fiduciary duties to the plans when they failed to monitor recordkeeping (RK) costs; failed to negotiate rebates for the plan from either Fidelity or other investment companies chosen to be on the plans’ platform; selected more expensive share classes for the investment platform when less expensive ones were available; and replaced the Vanguard Wellington Fund with Fidelity Freedom Funds on the investment menu.
Laughrey ruled that ABB breached its fiduciary duty to the plans because it failed to comply with the plans’ investment policy statement asserting that, “at all times, [Alliance] rebates will be used to offset or reduce the cost of providing administrative services to plan participants.”
Laughrey wrote in her opinion, “ABB had good information about how the investing habits of plan participants might affect the availability of revenue sharing, so it had a reasonable basis for conducting such an investigation.” She said she was unconvinced ABB monitored the reasonableness of Fidelity Trust recordkeeping fees by monitoring the reasonableness of the expense ratio of the retail investments chosen for the plans’ platform.
The court also found ABB Inc. and its employee benefits committee violated fiduciary duties to the plans by agreeing to pay Fidelity an amount that exceeded market costs for plan services; they did this in order to subsidize the corporate services provided to ABB by Fidelity, such as payroll and recordkeeping for its health and welfare plan and its defined benefit (DB) plan.
Fidelity Also Liable
According to Laughrey’s ruling, Fidelity Trust breached its fiduciary duties to the plans when it failed to distribute float income—interest earned on assets—solely for the interest of the plan. Fidelity Research violated its fiduciary duties when it transferred float income to the plans’ investment options instead of to the plans.
The court found ABB defendants jointly and severally liable for $13.4 million lost by the plans because of the failure to monitor recordkeeping fees and negotiate for rebate, and for $21.8 million lost by the plans due to the mapping of the Vanguard Wellington Fund to the Fidelity Freedom Funds. Fidelity defendants are jointly and severally liable for compensating the plans $1.7 million, for lost float income.
Laughrey rejected the plaintiffs’ global damages theory, which is based on the assumption that ABB’s breaches infected all of its investment decisions for the plans and that damages should thus be measured by the entire performance of ABB’s defined benefit plans. “While the court is suspicious that the relationship between ABB and Fidelity Trust infected more than the specific instances identified in this order, the court cannot rely on suspicion,” Laughrey wrote.
Participant Ronald C. Tussey filed the suit in 2006 against ABB, alleging it breached its Employee Retirement Income Security Act (ERISA) fiduciary duties by paying excessive fees to Fidelity Trust and failing to disclose to plan participants the revenue-sharing arrangement.
Boomers Lack Retirement Confidence
Few Baby Boomers are optimistic that their financial situation will improve during the next five years—that is, 62% believe it will remain about the same or will deteriorate. A study from the Insured Retirement Institute (IRI) also found that confidence in retirement security is severely depressed, with only 36% of Boomers certain they will have enough assets to live comfortably during retirement. The confidence shortage was even higher among single and middle-income Boomers. Nearly three out of four single Boomers and 70% of middle-income Boomers are not confident they will have enough money to live comfortably in retirement.
Analysis Shows Savings for Individuals With IRAs and 401(k)s
Fidelity Investments’ analysis of its administered individual retirement plans (IRAs) and 401(k) plans finds a combined average balance of $212,600. Investors on the verge of or in retirement—ages 65 to 69—have a combined average balance of $359,000. The Fidelity data shows the average balance for those individuals with a 401(k) only is $69,100 ($123,400 for those ages 65 to 69), and the average balance for individuals with an IRA only is $71,700 ($133,500 for those ages 65 to 69).