Fiduciaries May Have Disclosure Mandate Not Specified in Law

Federal regulators have contended that fiduciaries may still be legally required to disclose plan fees such as revenue sharing even if such a mandate is not explicit in federal benefits law.

That contention was contained in arguments presented to a federal appellate court by the U.S. Department of Labor (DoL) as part of an ongoing participant battle over revenue sharing fee disclosures. DoL lawyers filed a friend of the court legal brief with the 7th U.S. Circuit Court of Appeals asking the court to throw out a June 2007 ruling by U.S. District Judge John Shabaz of the U.S. District Court for the Western District of Wisconsin dismissing a participant excessive fee suit against Deere & Co., Fidelity Management Trust Company, and Fidelity Management and Research Company.

Shabaz asserted the defendants had followed current laws and regulations regarding retirement plan fee disclosures. Fidelity is trustee and recordkeeper for the farm equipment maker’s 401(k) plans (See Deere and Fidelity Fee Lawsuit Thrown Out

Among other issues, the DoL lawyers argued in their appellate brief, Shabaz had disregarded DoL regulations about the applicability of the Employee Retirement Income Security Act (ERISA)’s 404(c) safe harbor provision.

“In the Secretary’s view, the fiduciary duties of prudence and loyalty can encompass a duty to disclose information…,” the DoL brief contended. “Nothing in the text of (ERISA) or the regulations governing annual reports (Forms 5500) and summary plan descriptions indicates that those requirements were intended to be the exclusive disclosure obligations under ERISA, or purport to qualify in any way the general fiduciary obligations of prudence and loyalty….Thus, where the Act and regulations promulgated by the department do not expressly address whether a particular type of disclosure is required or what form a disclosure should take, the general fiduciary duty of prudence and loyalty applies and may, depending on the facts and circumstances of the case, require that a disclosure be made.”

The plaintiffs suit charged that Deere did not understand the fees being charged on its investment options, failed to implement any process for ensuring the reasonableness of the plans’ fees and expenses or to negotiate over the fees, and paid considerably more than was necessary given the size of the plan and the availability of investment alternatives.

The DoL document pointed out that a number of federal appellate courts have previously ruled that in certain circumstances, a fiduciary has an obligation to accurately convey material information to beneficiaries, including material information that the beneficiary did not specifically request. This obligation is contained in the common law of trusts, the government lawyers said.

A DoL Clarification

Despite their extensive arguments in favor of an appellate court reversal of the lower court decision, the DoL lawyers clarified that they were not necessarily pushing for a victory for the Deere plaintiffs on the merits of their suit.

“This is not to say, however, that the Secretary agrees with plaintiffs’ more sweeping suggestions that the fiduciaries of participant-directed plans must always, or even usually, disclose revenue sharing arrangements as a matter of general fiduciary principles,” the DoL brief asserted. “Indeed, we are skeptical that, absent any misrepresentations, ERISA’s duties of prudence and loyalty would have required disclosure to plan participants of revenue sharing among Fidelity affiliates.”

The friend of the court brief was filed in an effort to foreclose the appellate court’s sanctioning of what the DoL said was an overbroad rejection of “any possible fiduciary duty to disclose.”

The case is Hecker v. Deere & Co., 7th Cir., No. 07-3605. The DoL brief can be found here. The Shabaz ruling is available here.