(Bloomberg) — Fidelity Management Trust Co. and the U.S. unit of generator-maker ABB Ltd. won an appeals court decision that upends a trial judge’s finding that breaches of their legal obligations cost ABB retirement plan participants more than $35 million.
A 2-1 majority of the U.S. Court of Appeals in St. Louis ruled Fidelity had no obligation to recapture for plan participants $1.7 million in overnight “float” income because the funds weren’t a plan asset as defined by federal law. The panel unanimously agreed ABB breached its duty by failing to monitor plan record-keeping costs.
Still, the appeals court faulted U.S. District Judge Nanette Laughrey’s methods for computing damages and returned the case to her Jefferson City, Missouri, court for further consideration. The judge’s 2012 ruling came after a 16-day trial without a jury.
The group lawsuit was filed in December 2006 on behalf of a class of more than 12,800 participants, according to the complaint. It was tried before Laughrey without a jury in January 2010.
At issue was the management of ABB Inc’s. Personal Retirement Investment Savings Management — or PRISM — plans. Fidelity Trust acted as a trustee and record keeper.
“This is a victory not just for ABB employees but for all 401(k) plan employees and retirees who have and continue to pay excessive record-keeping fees,” Jerome Schlichter, a lawyer for the plaintiffs, said in an e-mailed statement.
“It affirms that plan sponsors have a fiduciary duty to monitor these costs and make sure they are reasonable,” said Schlichter, a partner in the St. Louis law firm Schlichter Bogard & Denton LLP.
Barry Dillon, a spokesman for ABB’s Cary, North Carolina-based U.S. unit, didn’t immediately respond to a voice-mail message seeking comment on today’s decision. ABB Ltd. is based in Zurich.
Fidelity’s media relations department didn’t respond to an e-mail seeking comment on the ruling. The company is a unit of Boston-based FMR LLC.
In her 2012 ruling, Laughrey said ABB had breached its fiduciary duty to to set up 401(k) plans in the best interests of its employees.
Workers paid high fees in the 401(k), which were used to he subsidize ABB’s costs for other corporate benefits administered by Fidelity, the judge found. ABB also violated its duty to employees when eliminating Vanguard Group Inc.’s Wellington Fund for target-date mutual funds managed by Fidelity in the 401(k), according to her ruling.
Laughrey found the ABB defendants liable for $35.2 million in damages and Fidelity liable for the lost float income. Both firms appealed the decision. Oral arguments were heard before three appeals court judges in September.
Reversing the trial court’s float finding, the panel majority said suing plan participants failed to show it was a plan asset and that the judge erred in finding Fidelity breached its duty.
They unanimously agreed with Laughrey’s conclusion ABB breached its duty to the plan by failing to diligently monitor Fidelity and its record-keeping costs. Laughrey was directed to reexamine damages she awarded on challenges to ABB’s election of investment options and “mapping” for participants who don’t choose a new option when an existing one is removed.
“The district court’s opinion shows clear signs of hindsight influence,” the appeals court said. “While it is easy to pick an investment option in retrospect (buy Apple Inc. at $7 a share in December 2000 and short Enron Corp. at $90 a share), selecting an investment beforehand is difficult.”
The case is Tussey v. ABB Inc., 06-cv-04305, U.S. District Court, Western District of Missouri (Jefferson City).