The Eighth Circuit May be Next to Rule on 401(k) Plan Fees

The Wal-Mart 401(k) plan is one of the largest plans in the U.S., with over 1 million participants and almost $10 billion in assets under the plan. The Eight Circuit will hear the issue of excessive fees after the case was quickly dismissed by the district court on a motion to dismiss. The appeal is focusing on the plans size in reviewing its ability to have negotiated the fees to the participants. The Wal-Mart 401(k) plan offers 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund. The opening brief sets forth that Merrill Lynch, the Plan's Trustee, had a revenue sharing arrangement with the mutual fund company it chose for the investment line up and, therefore, had "corrupted" the plan's fund selection process. The brief further argued that the mutual fund options were chosen based on the agreement to pay a kickback to the Trustee instead of choosing those options that would have better served the participants. The Department of Labor has filed an Amicus Brief urging the Eighth Circuit to reverse the District Court's dismissal.

(Braden v. Wal-Mart)

Tyco Fiduciaries NOT Shielded by ERISA section 404(c)

The U.S. District Court fo the District of New Hampshire appears to be in line with the Department of Labor's position on the extent of protection offered by ERISA section 404(c). In a case against Tyco for offering company stock as an investment option in the plan, the district court held that Tyco could not used 404(c) as a defense for choosing poor investment options for the plan. The court in Tyco gave deference to the DOL's position.

(In re Tyco International Ltd. Multidistrict Litigation, D.N.H., No. 02-1335-PB)

Department of Labor Critical of Seventh Circuit Ruling

The Department of Labor spoke out against the ruling in the Seventh Circuit regarding ERISA section 404(c) regulations. Timothy Hauser of the DOL said that he was disappointed in the Seventh Circuit to failure to give deference to the DOL's definition of the word "control" in ERISA section 404(c). The Seventh Circuit held that participants had "control" over the investments and, therefore, ERISA section 404(c) shielded the fiduciaries from liability. In a nutshell, the participants alleged that the fiduciaries breached their duties by failing to informt he participants of the fees associated with the investments in their accounts. The DOL stated that it is the employer not the participant who "controls"the investment menu. It appears to be the DOL's position that since it is the employer choosing the investment line up within the plan, ERISA section 404(c) cannot shield the employer from choosing investments that have excessive fees. The Seventh Circuit did not agree.

The District Court of New Hampshire seems to be inline with the Department of Labor's view on this one. See next Blog regarding the Tyco Case.

Class Certified in Action against Lockheed Martin

Continuing the long line of cases regarding excessive 401(k) fees, 100,000 employees filed suit against Lockheed Martin claiming breach of fiduciary duty for failure to ensure that the employees were not harmed by the excessive fees charged by the plan providers. The U.S. District Court for the Southern District of Illinois certified the class (Abbot v. Lockheed Martin Corp., S.D. Ill., No. 06-cv-0701-MJR). The court certified two of the three claims, the third being a claim for imprudently diluting the returns of the company stock funds. The court ruled there was a conflict between the parties in the class with regard to who had invested in the company stock funds.