(Reuters) - Fidelity Investments and ABB Inc violated federal law by causing ABB employees and retirees to pay excessive fees in their 401(k) plan, a U.S. judge has ruled.
"Instead of getting lower fees for ABB employees in their 401(k) plan, ABB and Fidelity used employees' retirement assets to benefit themselves," said Jerome Schlicter, the lead trial lawyer for the plaintiffs.
U.S. District Judge Nanette Laughrey ruled on March 31 that Fidelity and ABB, sponsor of the retirement plan, breached their fiduciary trust. She ordered manufacturer ABB to pay $35.2 million and Fidelity to pay $1.7 million for losses.
Boston-based Fidelity, the largest 401(k) provider in the United States, said the vast majority of the claims brought against the company in the case were dismissed. Company spokesman Vincent Loporchio called the only finding against Fidelity "a technical violation."
He said Fidelity's fees and compensation from the retirement plan were reasonable.
ABB Inc, a unit of Swiss manufacturer ABB Ltd, said it was reviewing the decision and weighing whether to appeal, a company spokesman said.
Judge Laughrey, from the Western District of Missouri said in her order that ABB's violation of fiduciary duties included its failure to monitor recordkeeping costs and to negotiate rebates from Fidelity on behalf of the retirement plan.
Fidelity breached its fiduciary duties to the plan when it used float income -- interest earned from plan assets -- to pay for bank expenses that should have been borne by Fidelity, the judge said in her order.
Judge Laughrey's 81-page ruling came after a four-week trial in January 2010. The judge said she rejected the plaintiffs' claims for global damages, which were based on the assumption ABB's breaches infected all of its investment decisions for the retirement plans.
"While the court is suspicious that the relationship between ABB and Fidelity Trust infected more than the specific instances identified in this order, the court cannot rely on suspicion and therefore rejects plaintiffs' global damage theory," the judge said.
But the judge outlined how Fidelity lost money on providing corporate services to ABB but made a substantial profit as the recordkeeper of the retirement plans.
The judge said ABB, for example, selected more expensive mutual fund share classes for the retirement plans when cheaper ones were available.
"ABB and the employee benefits committee violated their fiduciary duties to the plan when they agreed to pay to Fidelity an amount that exceeded market costs for plan services in order to subsidize the corporate services provided to ABB by Fidelity," the judge said.
