UTC Gets Legal Victory in Excess Fee Case

Calling arguments by plaintiffs’ lawyers “unpersuasive,” a federal judge in Connecticut ruled that United Technologies Corp. (UTC) did not breach its fiduciary duties under the Employee Retirement Income Security Act (ERISA) in connection with its plan expenses and its choice of investment options.

Senior U.S. District Court Judge Warren W. Eginton of the U.S. District Court for the District of Connecticut rebuffed arguments by three 401(k) participants that, among other things, UTC should have thought twice about picking actively managed funds because of the “near certainty” an active fund will not best its index counterpart (see “UTC Fee Case Judge Delivers Mixed Ruling’). Eginton rejected the argument UTC had not adequately considered using lower-cost separate account vehicles instead of mutual funds, and that its revenue-sharing arrangements led to unreasonably high and improperly disclosed fees.

“Plaintiffs do not attack the fees of any specific mutual fund as unreasonable in light of other analogous mutual fund fees; instead, plaintiffs rely on expert opinion that less-costly managed separate trust accounts outweigh the advantages of mutual funds,” Eginton wrote. “However, the evidence demonstrates that UTC’s selection process included appropriate consideration of the fees charged on the mutual fund options, and of the returns of each mutual fund net of its management expenses.”

The court also turned aside an assertion by an expert witness for the plaintiffs that UTC should be faulted for not having an investment policy statement. Eginton pointed out that sponsors are not required by ERISA to have one.

Finally, Eginton ruled that expenses paid to Fidelity Investments (including sub-transfer agent fees) were not unreasonable, because UTC presented proposals from Bankers Trust and The Vanguard Group, which Eginton said reflected comparable expense levels.

The ruling is available here.