A $55 million settlement after 13 years in litigation in the case of Tussey vs. ABB, illustrates the dangers of bundling qualified and non-qualified plans with the same recordkeeper. In an effort to maximize cost efficiency, ABB hired the same recordkeeper to administer both its qualified and non-qualified retirement plans. The recordkeeper, eager to maintain both plans cost effectively, applied revenue from the qualified plan to non-qualified plan fees. The recordkeeper also went a step further by recommending its own mutual funds in the qualified plan in favor of lower cost, equally as effective funds – directly costing qualified plan participants money. The result was additional revenue for the plan recordkeeper and lower fees for the plan sponsor, but a breach in fiduciary responsibility and a form of “self-dealing” prohibited by ERISA, which led to the lawsuit.
Tussey vs. ABB is a reminder of the need to seek out the best vendor for qualified plans and non-qualified plans separately. In addition to finding specialized service, bifurcating the plans mitigates fiduciary risk.
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