This article originally ran on August 18, 2015.
By Farhad Mirzada
A recent update on the long-running Tussey v. ABB lawsuit did not catch as much attention or press, when the outcome favored the fiduciaries. On July 9, the U.S. District Court for the Southwestern District of Missouri ruled on remand in Tussey v. ABB (No. 2:06-cv-04305-NKL) that ABB breached its fiduciary duties, but since plaintiffs failed to prove damages using the appropriate calculation suggested by the U.S. Court of Appeals for the 8th Circuit, judgment was entered in favor of the fiduciaries.
The U.S. District Court for the Southwestern District of Missouri originally ruled in favor of the plaintiffs in 2012, ordering ABB to pay $21.8 million in losses from the decision to map, or transfer, about $120 million in participants’ assets in Vanguard’s Wellington Fund to the Fidelity Freedom target date funds.
On appeal, the 8th Circuit agreed with the original ruling that ABB fiduciaries had caused participant losses by moving Wellington funds into the Freedom funds. Also, it was noted that Fidelity, which was the recordkeeper for ABB’s defined contribution plans, proposed substantial reductions in its recordkeeping fees if the assets in the Wellington Funds were mapped or transferred to Fidelity Freedom funds.
The key observations in the case were that:
- fees for the Wellington fund were lower than the fees for the Freedom funds;
- the Wellington Fund contributed less in revenue sharing fees than the Freedom funds;
- records show that an ABB trustee to the plan cited deteriorating performance as the basis for removing the Wellington Fund, but provided no further evidence to support that rationale; and
- ABB needed to make an exception to the investment policy statement in order to transfer the assets into the investment.
The 8th Circuit believes that the ABB defendants knew that removing the Wellington Fund and mapping its assets to the Freedom funds would result in increased revenues to Fidelity that would ultimately benefit ABB. Despite concluding that ABB breached its fiduciary responsibilities, the court concluded that plaintiffs “failed to satisfy their burden of proof on the issue of damages.” Therefore, judgment was entered in favor of the fiduciaries of ABB, Inc.
Farhad Mirzada is a member of the NTSA Communications Committee and is a Director at Cammack Retirement.
Cammack Retirement is an independent retirement plan consulting firm specializing in non-profit industries.
Please note that this article is for general informational purposes only, is not intended to be taken as legal advice or a recommended course of action in any given situation. Readers should consult their own legal advisor before taking any actions suggested in this article.
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA, or its members.