Defendants Score Two Victories in 401(k) Fee Cases

Fiduciaries are not guarantors of an investment’s success.  Rather, all they are asked to do is be diligent, prudent, and loyal in managing an investment’s success—the ultimate success or failure of the investment does not determine whether a fiduciary has properly complied with their duties.  This “process” defense is critical in 401(k) fee cases, where defendants will often attempt to defeat class actions by showing that they employed good fiduciaries processes, even if the investment  choices they made ultimately failed.

Decisions in two recent cases, Alas v. AT&T Services, Inc. and Reetz v. Lowe’s Companies, Inc., highlight the trend.  In Alas, fiduciaries of the AT&T 401(k) plan defeated a claim that they failed to prudently monitor the fees paid to the recordkeeper by pointing to evidence that they (with expert assistance) regularly reviewed the amount paid for recordkeeping fees against market benchmarks, renegotiated fees, and even included a “most favorable fee” clause in its contract with the recordkeeper, mandating that the fees charged to the AT&T 401(k) Plan be as good as any received by the recordkeeper.  Likewise, in Reetz, the district court found that a large consulting firm (and fiduciary investment advisor) did not breach its fiduciary duties by advising the plan to invest in new investments (including investments affiliated with the consultant) or cross selling other plan services.  Although some of the affiliated funds did not perform well as compared to other options, both the company and its neutral third-party advisor agreed that the fund was a prudent one and the consulting firm carefully tracked and measured its performance.  Likewise, although the firm may have “cross-sold” other services, there was nothing inherently wrong with such practices, and the company was always free to take or leave this at is discretion.

As always, good process starts before litigation, and it requires careful attention not only to decisions but how they are documented.  Consider seeking advice on how to properly manage this process.