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NEWS - Fidelity Wins Some in Appeal of Tussey Case

March 20, 2014 – Fidelity was able to convince an appellate court to vacate some of the decisions made against it in the widely watched case of Tussey v. ABB, Inc.

While the 8th U.S. Circuit Court of Appeals agreed with a district court finding that the ABB fiduciaries breached their duties to the plan by failing to diligently investigate Fidelity and monitor plan recordkeeping costs, it agreed with Fidelity and ABB that the district court relied on hindsight in its ruling that the switch from the Vanguard Wellington fund to Fidelity Freedom funds violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Fidelity was also found not liable for breaches concerning its use of “float” income.

In affirming the district court’s ruling that ABB breached its duties by failing to monitor recordkeeping costs, the 8th Circuit noted that the district court did not condemn bundling services or revenue-sharing, which are common and “acceptable” investment industry practices that frequently inure to the benefit of ERISA plans. Rather, the district court found, as a matter of fact, that the ABB fiduciaries failed to (1) calculate the amount the plan was paying Fidelity for recordkeeping through revenue sharing, (2) determine whether Fidelity’s pricing was competitive, (3) adequately leverage the plan’s size to reduce fees, and (4) “make a good faith effort to prevent the subsidization of administration costs of ABB corporate services” with plan assets, even after ABB’s own outside consultant notified ABB the plan was overpaying for recordkeeping and might be subsidizing ABB’s other corporate services.

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