State:
Free Special Resources
Get Your FREE Special Report. Download Any One Of These FREE Special Resources, Instantly!
Featured Special Report
Claim Your Free Cost Per Hire Calculator
This handy calculator lets you plug in your expenses for recruiting, benefits, salaries, and more.

Graphs automatically generate to show you your annual cost per hire and a breakdown of where you are spending the most money.

Download Now!
April 17, 2009
What, or Who, Is a Fiduciary?
A group of Wisconsin employees charged that, by agreeing to hire a particular investment company to administer its 401(k) plans and to offer many of that company’s funds as investment options, their employer—as well as the investment company it chose—had had violated the Employee Retirement Income Security Act (ERISA). So they filed a class-action lawsuit.

What happened. Three employees of Deere & Co. argued that the organization’s relationship with Fidelity Research and Fidelity Trust had damaged their retirement savings accounts. They charged that the Fidelity funds they were offered as the bulk of their investment options charged excessively high management fees and that Deere and Fidelity should have told plan participants that Fidelity Research had a revenue-sharing arrangement with Fidelity Trust.

Deere engaged Fidelity in 1990 and offered more than 20 different Fidelity funds to participants, as well as access to 2,500 other funds through an option called BrokerageLink, a Deere stock fund, and two Fidelity Trust funds. The employees reached a federal district court with their suit in June 2007, where a judge ruled against them for several reasons. They asked for a second hearing in October but were denied it, so they appealed to the 7th Circuit, which covers Illinois, Indiana, and Wisconsin.

What the court said. This case is important because employees of other companies have filed a variety of similar charges, and while there have been other district court rulings, this is the first one from a federal appellate court.

First, appellate judges expressed their belief that Deere employees had an array of investment options and were not limited to Fidelity funds. They noted that of the 23 Fidelity fund choices, expense ratios varied from as little as .07 percent to just over 1 percent but didn’t say whether the figures were “excessive.” And, Deere was not obliged to seek out the cheapest funds under ERISA.

Also under ERISA, they found that the Fidelity firms were not ‘functional fiduciaries,’ but only played a role in plan administration. So they had no obligation to disclose their revenue sharing agreement; further, once collected, the fees became Fidelity assets, not plan assets. Finally, judges said, the ‘safe-harbor’ ERISA provision in Section 404(c) does provide a defense to Deere and Fidelity. Hecker et al. v. Deere and Fidelity Management, U.S. Court of Appeals for the 7th Circuit, Nos. 07-3605 & 08-1224 (2/12/09).

Point to remember: Judges wrote, “If particular participants lost money or did not earn as much as they would have liked, that disappointing outcome was attributable to their individual choices.”

For a Limited Time receive a FREE Compensation Market Analysis Report! Find out how much you should be paying to attract and retain the best applicants and employees, with customized information for your industry, location, and job. Get Your Report Now!
Featured Free Resource:
Cost Per Hire Calculator
Twitter  Facebook  Linked In
Follow Us
HCMNPWS1
Copyright © 2024 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on https://Compensation.BLR.com
Document URL: https://compensation.blr.com/Compensation-news/Retirement-Planning/ERISA/What-or-Who-Is-a-Fiduciary