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7 things fiduciaries shouldn't say in court

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Last December, when Judge Nancy Rosenstengel denied Boeing Inc.’s motion for summary judgment in Spano v. Boeing Inc., she moved the case one step closer to trial, assuring that the 190,000 class members in the claim would finally have their day in court.

In that decision, Rosenstengel noted the case had generated a “lengthy procedural history.”

That might be an understatement.

First filed in September 2006, and based on claims that Boeing fiduciaries failed their duties of prudence under the Employee Retirement Income Security Act dating back to the 1990s, the case is widely considered the first in a well-documented series of 401(k) excessive-fee claims.

Before Judge Rosenstengel, the case fell to the dockets of two other judges in U.S. District Court for the Southern District of Illinois, the first of whom retired and passed away.

The second, Judge David Herndon, originally certified the class in 2008, a decision that was reversed on appeal in the 7th Circuit Court of Appeals.

In September 2013, the class was re-certified, and plaintiffs were split into five subclasses.

Trial was set to begin last week, a year after it was originally scheduled.

Boeing officials had maintained that the plan had not only always been ERISA-compliant, but that it indeed was one of the best 401(k) offerings in the market.

They vowed to fight the case until the end.

But of course, they didn’t. Discretion proved the better part of valor, and a preliminary settlement was announced as proceedings were set to begin.

That development surprised many, not the least of whom was Judge Rosenstengel, who, after taking responsibility for the case in May 2014, was witness to what she called the “deep antagonism and hostile posturing” from attorneys on both sides.

At its heart, the case was about Boeing’s relationship with State Street Bank, and the fees they charged as record keeper to the plan, valued these days at around $45 billion.

But there were also claims against the prudence of a science and technology sector fund, added to the investment menu in the high-flying days of the late 1990s, when tech companies were valued far beyond the revenues they generated.

Like a lot of investors then, Boeing participants swarmed to tech investments with little appreciation for their potential for volatility.

Sponsors and fiduciaries have learned a lot about fee monitoring, revenue sharing, and prudent investment offerings since Spano v. Boeing was first filed.

Nevertheless, new claims will arise. Below are a few excerpts from the depositions of a Boeing fiduciary, who had long since been retired from the company when he was deposed.

Sponsors might want to take note of some of his more incriminating statements in the event they some day are required to account for their decisions under oath. We found these seven rather revealing:

No. 1: It’s not my job 

“It was not the Boeing Company’s responsibility to make that decision, as it was not their responsibility for them to go into the guaranteed contract fund. An individual has the right to shoot themselves (sic) in the foot if they so desire. They pay the price.”

– Former Boeing Chief Investment Officer, answering questions for plaintiffs attorneys in 2008 regarding why a volatile technology sector fund was made available to plan participants. Sector funds are too risky to be included in plan menus, argued the plaintiffs.

No. 2: Fees? What? Where?

“I don’t think we monitored the con — other than this, the original contract. And we did help beat them down on the fees in general overall. But beyond that, you know, they would send us reports periodically, and that was a wandering basis. But we did not monitor the fees or where they went to.” (Emphasis added.)

– Same former Boeing fiduciary in 2008 deposition, on a question of whether or not participants were paying too much in fees to a CitiStreet fund, the subsidiary money manager of State Street Bank, the plan’s record keeper.

No. 3: Don’t ask me stuff I don’t know

“You keep asking me about revenue sharing. I don’t know a sprigging thing about revenue sharing.”

– Former Boeing fiduciary in 2008 deposition, when asked if he could point to the revenue sharing fees in a plan document.

No. 4: Don’t ask me stuff I don’t know if I knew

“I either didn’t know or didn’t care at the time because it was still sufficiently low that everybody was getting a very, very good deal.”

– Response when former fiduciary asked if he knew whether a CitiStreet fund charged 25 or 50 basis point in revenue sharing fees.

No. 5: Prudence? Do I know her?

“I did not, as a fiduciary, have an obligation to go out and tell people I thought it was too risky.”

– Former fiduciary, on questions of the prudence of including an allegedly volatile tech sector fund in the investment menu.

No. 6: Fiduciaries are like [bad] bartenders

“It was a very popular area of interest at the time. That’s why we offered the science and technology fund. As a fiduciary, we gave them that option. As a fiduciary, I’m not responsible for telling them to put their money in there or not to put their money in there.

“If I offer you the chance for another drink before you go out on the highway, and you choose to take that drink, that’s your responsibility, not mine.”

– Former fiduciary, on more questions as to the prudence of offering a volatile sector fund to participants.


No. 7: Silly plaintiff

“Ant sh%t!”

– How former fiduciary characterized the plaintiffs’ claim that the plan allocated too much cash to the company stock fund the detriment of plan participants and benefit of State Street.

See also:

DOL set to issue final fiduciary rule

In the cross-hairs of the DOL rule: Dually registered advisors

12 best practices to transition to the new fiduciary standard


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