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Aon Hewitt Retirement and Investment Blog

No Fiduciary Duty to Choose ‘Cheapest’ Investment Fund

On May 25, 2017, the U.S. District Court for Minnesota issued a decision in Meiners v. Wells Fargo & Company in favor of Wells Fargo. The plaintiff’s claim stated that Wells Fargo plan fiduciaries breached their fiduciary duties when they continued to invest plan assets in Wells Fargo investment funds that underperformed comparable Vanguard funds and were more expensive than both Vanguard and Fidelity funds.

The case is noteworthy in that it represents one of the few recent cases involving the financial services industry to have been resolved in favor of the financial institution. The court’s reasoning is also quite instructive—the court noted that the plaintiff was attempting to hold Wells Fargo’s fiduciaries liable for failing to choose the “cheapest” investment fund. The court also noted that to require plan fiduciaries to select the cheapest fund would suggest that fiduciaries should ignore other shortcomings with the investment fund. Moreover, the court noted that Wells Fargo’s fiduciaries’ selection of its own affiliated funds for a default investment option was not, in and of itself, a breach of fiduciary duty, given there was no indication that the selection was due to Wells Fargo’s own self-interest as opposed to legitimate fiduciary considerations.

The court decision dismissing the case against Wells Fargo (with prejudice) underscored the importance of having strong plan governance and following a prudent fiduciary process. The court indicated that nothing in the plaintiff’s complaint suggested that the investment funds offered by Vanguard or Fidelity were appropriate comparators to the investment funds offered by Wells Fargo—indeed, the court noted that different investment funds have different investment philosophies and would be expected to achieve different investment results. What was important for the court was whether the plaintiff had alleged that Wells Fargo’s fiduciary decision-making process was flawed. The court concluded that there were no allegations of an improper fiduciary process, and thus the complaint was dismissed.

While plan fiduciaries are not required to select the least expensive investment fund, they should be prepared to support why a more expensive fund is appropriate for the plan. This may be due to any number of reasons including differences in services offered, administrative capabilities, experience with plans of a comparable size, ability to interface with existing payroll and client systems, and particular investment philosophies.

Aon Hewitt’s Retirement Legal Consulting & Compliance consultants are pleased to work with plan sponsors in reviewing and revising plan governance and decision-making processes. Having (and following) a robust plan governance and decision-making process will assist in building a strong record to support fiduciary decisions and help protect plan sponsors from litigation risk.
 
Tom Meagher a Senior Partner and Practice Leader with Aon Hewitt Retirement Legal Consulting & Compliance. 

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