Breach of Fiduciary Duties Over Revenue Sharing With 401(k) Investments

August 2, 2012 at 9:42 am Leave a comment

The July 2012 Benefits Magazine has an interesting article entitled “Court Finds Several Breaches of Fiduciary Duties Regarding Investment of 401(k) Plan Assets”.  Located at http://www.ifebp.org/inforequest/0162261.pdf, the article discusses an investment arrangement where the plan fiduciaries incur several breaches of duty such as not benchmarking the plan investment choices and acting in their own self-interest.   One of the most interesting breaches has to do with the plan’s revenue sharing agreement related to plan fees.  Plan revenue sharing is not uncommon, and the new fee disclosures only require a note that such arrangements exist.

A plan fiduciary should note that they still need to review the arrangement.  In the case cited in the article, the investment companies provided revenue-sharing payments that escalated as assets increased to the trust company that acted as record-keeper.  The plan sponsor did not pay any fees to the trust company due to the agreement.  Instead, fees came from the revenue sharing payments.  Since the plan sponsor never reviewed the arrangement and never asked for a rebate to distribute to the plan as they paid more in revenue sharing, they were found by the United States District Court for the Western District of Missouri to have breached their duty.

Thanks for reading and have a wonderful day!   Please be sure to subscribe to my blog and follow me on twitter @ChristineGurney.

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Christine Gurney

A pension professional who shares her thoughts and ideas about the pension world for industry members and anyone else interested.

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