A federal judge has declared that Fidelity Investments and the American unit of ABB, Inc. violated federal laws by making pension holders pay excessive 401(k) plan fees, and has ordered the defendants to pay $36.9 million in damages.

The decision stems from a class action suit that went to trial for four weeks in January 2010. It was filed by present and former employees of ABB, Inc., an automation and power technology provider, who are participants in two retirement plans offered by ABB: Personal Retirement Investment and Savings Management Plan and Personal Retirement Investment and Savings Management Plan for Represented Employees of ABB, Inc.

The defendants in the case included ABB, Inc., its pension review committee, pension and thrift review management group and its employee benefits committee.

Also included amongst the defendants were Fidelity Management Trust Company and Fidelity Management & Research Company.

The formal name of the case was Kennedy et al v. ABB Inc. et al, U.S. District Court, Western District of Missouri, no. 06-cv-04305.

In an 81-page ruling, Western District Court Judge Nanette Laughrey ruled that the ABB defendants violated their fiduciary duties to the plan and its participants when they failed to monitor recordkeeping costs and negotiate for rebates from Fidelity Trust, and selected classes of particular investments to be on the PRISM Plan’s investment platform that had higher expenses when other share classes with lower expenses of those same investments were available.

Further, Judge Laughrey ABB violated its fiduciary duties to the plan when it had removed the Vanguard Wellington Fund from the plan, and replacing it with the Fidelity Freedom Funds., and paying Fidelity an amount that exceeded market costs for plan services in order to subsidize ABB’s corporate services.

Meanwhile, the judge ruled that Fidelity Trust breached its fiduciary duties by failing to distribute float income solely for the interest of the plan. Fidelity Research violated its fiduciary duties when it transferred float income to the plan’s investment options instead of the plan.

Consequently, the judge declared the ABB Defendants liable for $13.4 million lost by the plan due to ABB’s failure to monitor recordkeeping fees and negotiate for rebates, and $21.8 million lost by the plan due to the mapping of the Vanguard Wellington Fund to the Fidelity Freedom Funds.

The judge also declared the Fidelity defendants were liable for compensating the plan $1.7 million for lost float income.

Moreover, the defendants have been ordered to submit a schedule for resolving the issue of attorney fees and any other remaining issues.

A Fidelity spokesman told Money Management Executive that “vast majority” of the claims against Fidelity were dismissed by the court, and that the only finding against the company, “with which we respectfully disagree,” was a technical violation which resulted in a monetary award of less than one half of one percent of the total damages sought by plaintiffs: $1.7 million out of total $378.6 million sought. 

“We believe that we provide valuable services to 401(k) clients for whom Fidelity serves as a provider of recordkeeping services and trustee. And we believe the fees charged and the compensation collected by Fidelity for those services are reasonable,” the spokesperson said. 

Tommy Fernandez writes for Money Management Executive.