Kraft Denied Summary Judgment

A federal judge has denied summary judgment for Kraft in an excessive fee suit.

U.S. District Judge Ruben Castillo, of the U.S. District Court for the Northern District of Illinois, concluded that a jury could find that “a reasonably prudent business person with the interests of all the beneficiaries at heart” would have banned actively managed funds from their 401(k) plan as they had done in the Kraft defined benefit plan because they had concluded that active funds did not consistently outperform index managers. The court said that, although there may be differences between defined benefit plans and defined contribution plans, it believed a jury could reasonably find that a prudent fiduciary would have offered similar index funds in the 401(k) plan based on the same fiduciaries’ decision to eliminate active managers in the Kraft defined benefit plan.  

Attorney Jerome J. Schlichter said, “This ruling makes clear that plan fiduciaries who make investment choices in the defined benefit plans may commit fiduciary breaches when they make different choices in the 401(k) plan.” 

A trial date has not yet been set. 

The district court previously ruled Kraft had met the Employee Retirement Income Security Act (ERISA) requirements for fiduciary behavior in monitoring its recordkeeping service agreement with Hewitt regarding the Kraft Foods Global Inc. Thrift Plan, and investigating and then deciding to unitize its company stock funds (including having a cash component to allow for faster share redemptions). The court contended that ERISA requires only that plan fiduciaries carry out a prudent process in making plan decisions, not achieve perfection by reaching decisions with which all agree. 

However, the 7th U.S. Circuit Court of Appeals sent the case back to the district court, saying there was genuine issue of material fact as to whether Kraft acted prudently (see "Appellate Court Sends Back Kraft Fee Case"). 

The latest district court ruling is here.