Court Says That 401(k) Plan Sponsor and Fund Company Not Required to Disclose Revenue Sharing
The Seventh Circuit Court of Appeals dismissed a case brought by 401(k) plan participants against the plan sponsor and a mutual fund company for charging excessive fees and failing to disclose revenue sharing. With respect to excessive fees, the Court explained that the plan sponsor offered a wide range of investment options (26 funds) that were available to the public and included a brokerage option allowing the purchase of third party funds. The Court opined that ERISA does not require disclosure of revenue sharing between the fund company and its TPA affiliate. According to the Court, such fee sharing is immaterial to investors who did receive disclosure of aggregate fees. The Court opined that the plan sponsor also complied with the Rule 404(c) safe harbor. Notably, the Court rejected the plaintiff’s argument that the plan sponsor misled investors because it gave the impression that the plan sponsor would pay administrative costs when, in fact, such costs were paid by the participants through their investments in the funds and the fee sharing with the TPA.
OUR TAKE: The Court suggests that plan sponsors and fund sponsors can avoid liability by offering a wide array of investment options and disclosing aggregate fees. However, the Court also seems to be inviting Congress or the DoL to specifically require disclosure of revenue sharing arrangements.