DoL Urges Unisys Fee Case Reversal

A federal judge in Pennsylvania made a mistake when he threw out a 401(k) excessive fee case against Unisys Corporation and Fidelity Management Trust Company, the Department of Labor (DoL) contends in court papers.

In urging the 3rd U.S. Circuit Court of Appeals to overturn a ruling by U.S. District Judge Berle M. Schiller of the U.S. District Court for the Eastern District of Pennsylvania, DoL attorney Elizabeth Hopkins argues that the participants had advanced a strong enough case to survive an initial legal challenge. Hopkins made the comments in a friend of the court brief filed with the appellate court supporting the plaintiffs’ appeal of Schiller’s April 2010 order.

Noting that federal courts only require a lawsuit to inform the defendants about the nature of the legal claims and “plausibly state a claim for which relief is available,” Hopkins argues the plaintiffs met that standard and should be allowed to move forward.

“The complaint in this case alleges that Plan fiduciaries, who are impressed by (Employee Retirement Income Security Act) ERISA with strict duties of prudence and loyalty, violated their duties by allowing one of the country’s largest 401(k) plans to pay excessive retail-level fees for its investments when it could have obtained the same investments and services for less,” Hopkins writes in the brief. “Fees are an important component of the overall performance of ERISA defined contribution plans and, therefore, ensuring the reasonableness of those fees is a critical component of a prudent fiduciary’s responsibilities.”

Hopkins continues: “(Schiller’s) order dismissing this suit on plausibility grounds not only misconstrues ERISA’s fiduciary duties with regard to plan fees, it also directly undermines ERISA’s expressly stated intent to provide plan participants and beneficiaries ‘ready access to the Federal courts.’ Nothing in the (requirements for federal court lawsuits) supports this result.”

According to Hopkins’ brief, Schiller also misconstrued ERISA section 404(c). “The statutory safe harbor in section 404(c) does not immunize fiduciaries for losses caused by their own imprudence,” Hopkins declares. “… Instead, it ensures that plan fiduciaries retain responsibility – and accountability – for the prudent selection and monitoring of plan investment options in accordance with ERISA’s stringent fiduciary obligations.”

Schiller ruled that Fidelity Management Trust Company and other Fidelity defendants were not functional fiduciaries for the investment selection for the plan, so no claim could be made against them, and that Unisys had met the requisite standard of care in its investment offerings to participants (see Unisys, Fidelity Win Excessive Fee Case Dismissal).

Schiller pointed out that the plan offered participants 70 investment options with varying fees, risks, and potential rewards – including commingled pools, index funds, bond funds, funds representing various parts of the global economy, and a money market fund – and the fees charged by these funds were disclosed to investors who could choose from among the investment options to create a portfolio tailored to meet their investment objectives.

The DoL appellate brief is here.