Compliance November 21, 2008

Wal-Mart Captures Excessive Fee Suit Victory

A federal judge handed retail giant Wal-Mart Stores a resounding legal victory by swatting away a participant’s excessive fee lawsuit.
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The Missouri judge ruled that the participant fell short of the plaintiff’s responsibility to show the employer violated its fiduciary responsibilities. On each charge leveled in the five-count suit, U.S. District Judge Gary A. Fenner of the U.S. District Court for the Western District of Missouri ruled that plaintiff Jeremy Braden, a participant in Wal-Mart’s profit-sharing/401(k) plan, had not proven the employer and the plan fiduciaries had not properly fulfilled their responsibilities.

In his March 2008 suit, Braden charged that the plan had paid $62 million to $92 million in fees since January 2002 in connection with the 10 mutual funds offered as plan investment options. By using participant assets to pay those allegedly excessive fees, Braden charged, the employer and the plan fiduciaries violated the Employee Retirement Income Security Act (ERISA).

Fenner ruled that Braden’s suit contained little more than “conclusory allegations, without any factual support’ that Wal-Mart and the fiduciaries had not properly considered a range of options or used a legally defensible process when deciding on the plan’s structure or its investment offerings.

“Wal-Mart and the (Retirement Plans Committee) could have chosen funds with higher fees for any number of reasons, including potential for higher return, lower financial risk, more services offered, or greater management flexibility,’ Fenner ruled. “Plaintiff’s dissatisfaction with fees or earnings does nothing to establish a colorable claim that Wal-Mart and the (committee) did not properly investigate available options before making a decision.’

The Wal-Mart Plan

According to Fenner, who cited Department of Labor reports, the Wal-Mart plan had 1,062,033 participants with net assets of $9.89 billion as of January 31, 2007. During the time addressed in Braden’s suit, the plan has featured 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund as investment options. Fenner said the mutual funds are all offered through retail class shares and most are actively managed, both of which, the court noted, typically involve higher expenses/fees.

Seven of the 10 mutual funds charge 12b-1 fees, collecting over $26 million in 12b-1 fees over the period involved in the suit, Fenner said, noting that comparable options were available that did not charge 12b-1 fees. The 10 funds’ fee structure also includes a revenue-sharing charge.

The opinion listed the 10 available funds as:

  • PIMCO Total Return Fund (Administrative Class)
  • Davis New York Venture Fund (Class A)
  • Merrill Lynch Equity Index Trust (Tier 1)
  • Massachusetts Investors Growth Stock Fund (Class A)
  • Ariel Fund
  • Franklin Small-Mid Cap Growth Fund (Class A)
  • Merrill Lynch Small Cap Index Trust (Tier 1)
  • AIM International Growth Fund (Class A)
  • American EuroPacific Growth Fund (Class R4)
  • Allianz RCM Technology Fund (Class A).

The latest ruling in Braden v. Wal-Mart Stores Inc., W.D. Mo., No. 08-3109-CV-S-GAF, 10/28/08, is available here. The original lawsuit is available here.

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