On Remand, ABB Wins Fund Change Case

In the long-running Tussey v. ABB lawsuit, a court found ABB breached its fiduciary duties, but a procedural error by plaintiffs handed ABB the win.

By Rebecca Moore | July 13, 2015
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On remand, a district court weighing whether fiduciaries to a 401(k) plan abused their discretion when making an investment lineup change found they did, but since plaintiffs in the case failed to prove damages using the appropriate calculation, judgement was entered in favor of the fiduciaries.

The decision was made in the long-running case Tussey v. ABB in the 8th Circuit. The 8th U.S. Circuit Court of Appeals ruled that the district court’s opinion concerning the ABB PRISM plan’s switch from the Vanguard Wellington fund to the Fidelity Freedom target-date funds shows clear signs of hindsight influence regarding the market for target-date funds at the time of the redesign and the investment options’ subsequent performance. The court added that it could not be certain that the district court would have come to the same conclusion had it used the correct standard of deference to the fiduciaries in deciding whether the change was appropriate in relation to plan and investment policy statement (IPS) terms. The appellate court vacated the district court’s judgment and damages award and remanded for further consideration using the abuse of discretion standard set forth in Firestone Tire & Rubber Co. v. Bruch

The U.S. District Court for the Western District of Missouri noted several procedural irregularities in the decision to switch funds, including:

  • the strong performance of the Wellington Fund during the time period specifically identified in the IPS;
  • ABB’s inconsistent explanations for removing the Wellington Fund and mapping its assets to the Freedom Funds;
  • the fact that ABB took a substantial part of the PRISM plan’s assets and put them into an investment that was so new that ABB needed to make an exception to the IPS; and
  • Fidelity’s explicit offer to give ABB a better deal if the Wellington assets were mapped into the Freedom Funds.