For Fidelity Investments, the reversing of Tussey v. ABB (in which Fidelity was originally accused of excessive 401(k) fees) is undeniably a win in the short term for Fidelity. But what has this landmark case taught us about the Department of Labor’s interpretation and enforcement of the most recent fee disclosure rules?

There are two primary takeaways from what experts are calling the “biggest 401(k) case in decades.”

The Onus of Fiduciary Responsibility and Vendor Oversight Rests with the Plan Sponsor

Although Fidelity was charged with high fees and a questionable fee structure, it was Fidelity’s client, ABB, who ultimately paid the price for allowing these transgressions to occur. Plan sponsors are being held liable if they do not sufficiently scrutinize their vendor arrangements and compensation. This was supported by several findings in the case.

Fidelity’s fee arrangement of revenue sharing was questionable, but the court blamed ABB for not having adequate measures in place to monitor that revenue sharing model. Verdict? The loser is ABB, not Fidelity.

Fidelity’s compensation was too high for the services they provided. But the court ruled that ABB did not; a) regularly evaluate Fidelity’s value (compensation as compared to services rendered) or b) compare any other providers’ offerings as a competitive benchmark. The verdict, again, fell against ABB.

Fiduciary responsibility requires regular vendor monitoring and evaluation, (the corporate sector calls it “supply chain management”) and plan sponsors who do not do so (or who do not hire a 3(16) Plan Administrator to handle that duty on their behalf) are in danger of reaping serious repercussions.

Investment Advisors Need to Help Keep Plan Sponsors Accountable to the Plan Document

One of the biggest issues in the case was that while Fidelity started by charging a flat fee per participant, the company switched to a revenue-sharing model – a more controversial type of compensation, and one that was not outlined in the original retirement plan document.

In an RIABiz article, Jason Roberts, chief executive at Pension Resource Institute LLC, shared his perspective that “employers still aren’t savvy about 401(k) plans and rules,” saying that, “Even a company as big as ABB isn’t in business to sponsor a plan. They’re running their business.”

While plan sponsors may not be in the position to adequately manage a retirement plan on top of their other executive responsibilities, investment advisors are in a role that can be critical to keeping the plan sponsor on track. Whether advisors hire a 3(16) to act on behalf of the plan sponsor, or simply ensure that vendor value and compensation reviews are occurring on an annual basis, they can impact the effectiveness of their plan sponsor clients and help safeguard against fiduciary violations.

What other takeaways did you find from the Tussey v. ABB Case?

Share your comments below, or chat with us on Twitter, at @RolandCriss.

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