By: Minyon Bolton, JD and Jennifer Kiesewetter, Esq.
Tussey was back before the Eighth Circuit to determine what ABB’s breach cost the ABB, Inc. 401(k) defined contribution saving plans, one plan for union employees and the second for non-union employees (collectively “the Plans”). The Eighth Circuit—in its second opinion in Tussey, et al. v. ABB, et al., Nos. 15-2792 and 16-1127, 2017 WL 929202 (8th Cir. Mar. 9, 2017)— issued further guidance on plan fiduciary deference and measuring plan losses.
Tussey first came to the Eighth Circuit in 2013 on the cross-appeal of both parties following the Western District of Missouri’s (“District Court”) 2012 ruling that ABB and Fidelity breached fiduciary duties owed to Plan participants. The District Court originally ordered ABB to pay $13.4 million for failing to control recordkeeping costs and $21.8 million for Plan losses stemming from bad-faith Plan investment options/mapping. The District Court ordered Fidelity to pay $1.7 million for lost float income and held both ABB and Fidelity jointly and severally liable for more than $13.4 million in attorney fees and costs.
On appeal in 2014, the Eighth Circuit vacated the District Court’s finding of breach of duty by ABB on liability for plan investment options/mapping. Remanding this issue, the Eighth Circuit held that the District Court should have afforded more deference to the ABB fiduciaries pursuant to the Plan document and found that the damages calculations were speculative and exceeding the Plan participants’ losses. In dictum (or non-binding language), the Eighth Circuit suggested measuring damages for investment options/mapping by comparing the difference between the performance of certain funds and the minimum return of a subset of managed allocation funds ABB could have chosen without breaching their fiduciary duties. The Eighth Circuit reversed the judgment against Fidelity and vacated the attorney fees award in favor of Tussey counsel pending resolution of the remand. The Eighth Circuit affirmed ABB’s liability for breaching its fiduciary duties as to the recordkeeping claim.
On remand, the District Court again found that ABB breached its fiduciary duties with regards to investment options/mapping but concluded that the Plan participants failed to prove losses under the measure of damages theory advanced by the Eighth Circuit in dictum. The District Court thus reduced the attorney fee award in favor of Tussey counsel to $10,768,474.00 through trial and added $900,000.00 for work on the appeal for a total of $11,668,474.00. Both parties cross-appealed—the Tussey parties challenging the District Court’s measure of damages and ABB challenging the attorney fee award for trial and appeal work.
Before the Eighth Circuit on the second appeal, ABB argued that they did not actually breach their fiduciary duties thus a determination of how much the Plans lost in value was unnecessary. ABB argued that the District Court’s finding that ABB’s decision to move investment funds and change asset mapping was motived by a desire to benefit Fidelity and ABB, was speculative and equated the effect of a decision with its purpose. However, the Eighth Circuit found that there was strong evidence to support the District Court’s finding. Evidence showed that the director of ABB’s Pension Review Committee and ABB’s Director of employee benefits openly communicated with Fidelity about pricing implications for changes to the Plans’ investment lineup and requested specific dollar amounts for reduced fees to change Plan asset mapping. Additionally, the Eighth Circuit re-affirmed the District Court’s finding that ABB failed to monitor and control Fidelity’s recordkeeping fees and paid Fidelity excessive revenue sharing from Plan assets.
In an attempt to rebut liability, ABB re-argued that the District Court ignored the discretion they were entrusted in directing Plan investment options pursuant to the Plan document. However, the Eighth Circuit found that ABB overstated the deference it was entitled. While a plan administrator is entitled to discretion with regards to its reasonable investment choices, this does not prevent a court from reviewing a plan administrator’s motivations. As such, the Eighth Circuit found that the District Court was not second-guessing whether ABB’s decision was reasonable but was observing ABB’s decisions to determine the motivation for the actions taken. Viewed in whole, the Eighth Circuit found that ABB’s actions suggested that they were driven by a desire to benefit themselves not the Plan. Explaining that improper motive can lead to a plan fiduciary abusing its discretion and breaching its duties, the Eighth Circuit found that this is true even if a fiduciary acting for the right reasons could end up in the same place as a fiduciary lead by improper motive. A fiduciary has no choice as to whether he or she will favor the plans’ interest or their own and must always act in the best interest of the plan. Accordingly, the Eighth Circuit found that ABB was not entitled to deference in the District Court’s review of their motives and affirmed that ABB abused its discretion and breached its fiduciary duties for Plan investment options/asset mapping.
The Eighth Circuit found that the District Court arrived at its damage calculation by: (1) awarding the amount the participants who had invested in the original fund would have received had it not been replaced by the replacement fund and (2) the participants remained invested in the original fund for the entire period. The Eighth Circuit found that it was a reasonable inference that participants who invested in the replacement fund would have invested in the original fund had it not been removed from the Plan’s investment platform. To clarify itself, the Eighth Circuit stated that its 2014 proffered measure of damages was a suggestion and the District Court was tasked with determining the exact method of calculating losses or the measure of damages. In properly resolving this issue, the Eighth Circuit found that the District Court should have considered other ways of measuring the Plans’ losses from ABB’s breaches in addition to entertaining Plan participants’ arguments regarding the measure of damages.
The Eighth Circuit opined that its prior ruling did not limit the kind of managed allocation funds (i.e. static or dynamic) that the District Court could have used in its measurement. Additionally, the Eighth Circuit found that comparing the returns from the original fund with what the Plans would have earned from the replacement fund was appropriate because while the funds were designed for different purposes (and would thus not result in similar returns) the point of the comparison was to determine the effect of owning one fund rather than the other, not to compare the difference in returns. Thus, the Eighth Circuit directed the District Court to determine a measure of damages for Plan losses and the correlating amount of those damages.
Attorney Fees and Costs
The Eighth Circuit again vacated the award of attorney fees and remanded the issue to the District Court to resolve depending on the outcome of pending liability issues.
The Eighth Circuit has further clarified the scope of plan fiduciary deference with regards to investment options and determinations. Fiduciary motive is inescapable even if its results produce a positive plan outcome. While wrongful motive resulting in positive plan outcome does not per se cause actionable plan losses, the wrongful motive is still a breach of fiduciary duty. Plan fiduciaries must ensure that their motives and actions (whether actual action or action that can be inferred from the circumstances) show that they are motivated to act in the best interest of the plan. Additionally, in the Eighth Circuit, courts have wide discretion to measure plan losses. Courts can look at the effects of participants owning one kind of fund over another and are not necessarily limited to funds that have similar returns.
Link to Opinion: http://media.ca8.uscourts.gov/opndir/17/03/152792P.pdf