Merrill Lynch successfully defended its assertion that they were not fiduciaries in the Enron case. Plan sponsors will need to verify that all fees are reasonable and justified.
One interesting aspect of the settlement is that Merrill Lynch, which initially wasn’t a named defendant, would pay $10 million of the $13.5 million. This is presumably due to an explosive allegation that emerged during the litigation.As recounted in a 2009 Forbes story, the lawsuit was filed in 2008 by Braden, a Walmart employee in Highlandville, Mo. It charged that Walmart–famous for using its size to squeeze suppliers to get the lowest possible price to pass onto customers–did nothing of the sort with mutual funds offered in its 401(k) plan. The company offered just 10 investment options, most of them mutual funds charging “retail” fees, code for very high charges. High fees will eat tremendously into the nest eggs that employees are trying to accumulate for retirement. The lawsuit alleged various violation of fiduciary duty and federal pension law.
The trial judge’s dismissal of the case was reversed by the federal appeals court in St. Louis. Then, in an amended complaint, Braden added Merrill Lynch as a defendant, saying the giant investment firm received undisclosed “kickback payments” from outside mutual fund companies simply for allowing them to be in the plan.
The new fee disclosure regulations take effect April 1, 2012. This type of law suit may become more frequent.
Please comment or call to discuss.
- A Closer Look at Fiduciary Status Under ERISA (401kplanadvisors.com)
- Retirement Plan Sponsors’ 401(k) Perceptions vs. Reality (401kplanadvisors.com)
- Merrill Lynch To Pay $315 Million To Settle Charges It Misled Mortgage Investors (thinkprogress.org)