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Saying Goodbye to "Tussey" and Learning Its Lessons

Things - whether good or bad - must ultimately come to an end. And so it was for the 13-year old Tussey v. ABB, Inc. case which settled a few months ago for $55 million - about $20 million of that going to plaintiff attorneys. As we say goodbye to this longstanding litigation involving a jury trial, two appeals, denial of review by the Supreme Court, and barrels of ink in commentary (or perhaps more aptly, “dead” electrons), it’s useful to be reminded of its important lessons for 401(k) plan fiduciaries:

· Regular monitoring of recordkeeping fees in the best interest of plan participants is a central fiduciary duty and comparison shopping is a critical aspect of that duty. This means having a process for removing and adding funds.

· Ignoring the advice of your own expert consultant that recordkeeping fees are too high is not a good idea.

· Failing to understand revenue sharing flows in your 401(k) plan is also not a good idea – you need to understand these flows to know true costs.

· You had better have a good reason for selecting a higher cost investment fund and be able to substantiate it.

· If a plan is going to establish an investment policy statement (every plan should have one) you need to follow it. For example, the Tussey plan IPS said any rebates associated with the investments of the plan would be used to reduce or offset costs; in practice the rebates ended up as additional compensation to the recordkeeper. This was only one of the failures to follow the IPS identified in the litigation.

· Never allow one of your plans to pay higher fees in order to subsidize the costs of another of your plans.

· Understand what “float” is, that float is a plan asset, and that if it is “paid” to the recordkeeper, it represents additional compensation that must be accounted for in determining whether aggregate fees for services are reasonable.

· Not practicing good plan hygiene is expensive - as the folks at ABB found out. Not only did the plan sponsor incur the direct costs of the settlement but it no doubt paid millions of dollars in fees to its own attorneys and spent huge amounts of executive and staff time dealing with the litigation.

Fiduciary Plan Governance helps plan sponsors assess and establish prudent plan practices, assists and helps plan sponsors run requests for proposals and generally helps sponsors avoid Tussey-like issues. As always, you can contact FPG anytime at to initiate your no-cost, thirty minute plan wellness audit.

Chuck Humphrey is the principal of Law Offices of Charles G. Humphrey, Buffalo, New York and a consultant to Fiduciary Plan Governance. He has been engaged in the practice of ERISA and employee benefits law for over 35 years. He is the author of the Fiduciary eSource available at He may be reached at or 716-465-7505.

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