In Tussey v. ABB, Inc., the US Court of Appeals for the Eighth Circuit held that the district court, which on remand ruled that retirement plan fiduciaries breached their fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) to several retirement plans, erred by not evaluating different methods of measuring what the plans lost as a result of the breach (No. 15-2792, No. 16-1127, (8th Cir. Mar. 9, 2017)).

Defendant ABB sponsored two 401(k) plans for its employees. A committee of ABB individuals oversaw all of ABB's employee benefit programs and was the named plan administrator of the plans (see Standard Document, Administrative Committee Charter for Defined Contribution Plan). Fidelity was a recordkeeper and service provider to the plans (see Choosing Retirement Plan Service Providers Checklist). Beginning in 2001, the plans offered Fidelity target-date funds (Fidelity funds) as plan investment options and monies that were invested in a Vanguard balanced fund (Vanguard fund) were transferred (mapped) to the Fidelity funds, unless affected participants chose to invest those monies in other plan investment options. Fidelity, as the plan recordkeeper, was primarily paid through a revenue-sharing arrangement by which Fidelity Trust was paid a percentage of the plans' assets from participants' accounts in a particular fund.

The plaintiffs brought claims on behalf of a class of present and former ABB employees who are participants in the plans. In its first decision, the district court held that several ABB and Fidelity defendants, including ABB, the plan's committee, and Fidelity Research and Fidelity Trust, breached their ERISA fiduciary duties to the plans by:

The district court awarded a $36.9 million judgment against ABB Inc. and Fidelity Management & Research Co., including $13.4 million for the recordkeeping claim, $21.8 million on the investment and mapping claims and $1.7 million based on float income.

The Eighth Circuit upheld the $13.4 million decision against ABB regarding recordkeeping fees paid to Fidelity, but reversed and remanded the $21.8 million award based on losses due to mapping from the Vanguard fund to Fidelity's funds. The Eighth Circuit also reversed the $1.7 million based on float income. The Eighth Circuit instructed the district court to apply Firestone deference to the mapping claims and re-evaluate its method of determining damages resulting from this fiduciary breach (see Standard Clauses, Plan Language, Firestone Plan Interpretation and SPD Language, Firestone Plan Interpretation). For more information, including a discussion of the other holdings of the Eighth Circuit on the first appeal, see Legal Update, Eighth Circuit Issues Widely Anticipated Excessive Fee Decision in Tussey v. ABB.

On remand, the district court again held that the ABB fiduciaries breached their fiduciary duties to the plans, but the court concluded that the participants failed to prove any losses under the method of determining plan losses that the Eighth Circuit "tacitly approved" in the first appeal, which compares the Fidelity funds' returns to the worst-performing of the funds the ABB fiduciaries could have properly chosen. It did, however, award the plan participants attorney's fees.

The plan participants appealed the district court's ruling on measuring losses and liability for the breach. The ABB fiduciaries cross-appealed, arguing that both parts of the fee award were still too high.

On the second appeal, the Eighth Circuit reversed and remanded the district court's holding on the issue of how to measure the value of the losses the plan participants suffered as a result of the ABB fiduciaries' breach of fiduciary duties to the plan.

The Eighth Circuit explained that when it instructed the district court in the first appeal to "re-evaluate its method of calculating the damage award," it meant that the district court should have evaluated different ways of measuring the plans' losses and then decided for itself which method to use. In connection with that instruction, the Eighth Circuit had proposed an alternative method of calculating losses (that is, comparing the Fidelity Funds to the worst-performing funds in the plan), but on remand the district court erroneously considered itself bound by that proposal. The Eighth Circuit in the second appeal stated that the district court was not bound to follow that proposal but instead was required to:

The Eighth Circuit rejected the ABB fiduciaries' assertion that they did not actually breach their fiduciary duties by mapping the participants' assets to the Fidelity Funds in part to provide Fidelity with higher fees because on other occasions the fiduciaries acted against Fidelity's interests, such as by:

The Eighth Circuit pointed out that these examples all relate to other investment decisions made by the fiduciaries on behalf of the plan, and do not undermine the district court's holding that the defendants breached their fiduciary duty to the plans in this case.

Plan sponsors, fiduciaries, and service providers should continue to track the developments in Tussey v. ABB, Inc., particularly as they relate to the district court's analysis as to what the proper method of valuing plan losses is in this scenario. This case is also a helpful reminder that: