The Braden-Tibble-Tussey Trilogy – A LaRue Like Epiphany?

For years participants in defined contribution plans suffered from the failure of the legal system to understand the significant differences between defined benefit plans and defined contribution plans. Finally, in 2008, the Supreme Court acknowledged the differences and provided much-needed relief to defined contribution participants.(1)

The recent decisions in the Braden-Tibble-Tussey(2) trilogy suggest that a LaRue-like epiphany may be occurring to provide defined contribution participants with much-needed information to allow them to make the “fully informed investment decisions” promised to them as part of ERISA 404(c) plans, and to require plan sponsors and other plan fiduciaries to comply with their fiduciary duties of loyalty and prudence.


Congress primarily intended ERISA to be a consumer protection bill….Borrowing from trust law, ERISA imposes high standards of fiduciary duty upon those responsible for administering an ERISA plan and investing and disposing of its assets.(3)

ERISA imposes upon fiduciaries twin duties of loyalty and prudence requiring them to act ‘solely in the interest of [plan] participants and beneficiaries’ and to carry out their duties ‘with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.'(4)

In assessing the prudence of a fiduciary’s actions, the focus is properly on the process that the fiduciary used in making their decisions rather than the results of those decisions. Fiduciaries are required to make their own “thorough, unbiased and independent” evaluation and analysis of investments and cannot blindly rely on the advice of consultants or other third-party advisers.(5)

Tibble v. Edison, International
In Tibble, the court addressed the issue of revenue sharing, fund selection, and fiduciary liability for prudent fund selection and ongoing monitoring. Based on the facts of the case, the court ruled that the revenue sharing involved in the case was not improper. However, the court noted that liability might attach in cases where it could be shown that a fiduciary’s selection of funds was based on the financial benefits of revenue sharing  rather than on the merits of the investments and the best interests of the plan and the plan’s participants’ and beneficiaries.

In addressing the question of fiduciary liability for the selection and monitoring of plan investment options, the court first dealt with the plan’s argument that Section 404(c) insulates plan fiduciaries from any liability in connection with the selection of a plan’s investment options. The court rejected the plan’s argument, pointing out that Section 404(c) only provides protection for losses due to the decisions and actions of the participants and that the choice of investment options is a fiduciary duty of the plan’s fiduciaries.  The Court also noted the long-standing position of the Department of Labor in accord with the court’s interpretation of Section 404(c), to wit

Section 404(c) does not serve to relieve a fiduciary from its duty to prudently select and monitor any service provided or designated investment alternative offered under the plan.(6)

The court then ruled that the fiduciary in Tibble had breached its fiduciary duty of prudence by selecting retail funds without investigating and evaluating the possibility of more cost efficient institutional shares for the plan.

Braden v. Wal-Mart Stores, Inc.

Braden alleged that the plan’s fiduciaries had failed to properly evaluate the plan’s investment options and had failed to make various dislosures of material information about the investment options chosen, therefore preventing the plan participants from having the opportunity to make informed investment decisions guaranteed under ERISA. Among the information not disclosed to plan participants was the fact that (1) the plan’s funds charged higher fees than readily available alternatives designed to track the same market indices: (2) the plan’s funds underperformed readily available and more cost effective alternatives; and (3) the plan fiduciaries did not select the plan funds or continually evaluate them based on the reasonableness of the fees they charged.

With regard to the revenue sharing arrangement, Braden cited nondisclsoure of information such as (1) the amount of the payments; (2) the fact that such fees were not returned to the plan, but were paid to the plan’s fiduciaries; and (3) the fact that the payments were made in exchange for inclusion of certain funds in the plan, therefore creating potential conflicts of interest resulting in biased choices not necessarily made in the plan participants’ best interests.

In reversing the lower court’s grant of summary judgement against Braden, the appellate court noted that the lower court had failed to apply the appropriate materialty analysis with regard to Braden’s claims.  

Information is material if there is a substantial likelihood that nondisclosure ‘would mislead a reasonable employee in the process of making an adequately informed decision regarding benefits to which she might be entitled.’ In the context of this case, materiality turns on the effect information would have on a reasonable participant’s decisions on how to allocate his or her investments among the options in the Plan….[In this case,] a reasonable trier of fact could find that failure to disclose this information would mislead a reasonable participant in the process of making investment decisions under the Plan.(7)

As to the issue of the disclosure of revenue sharing arrangements, the court noted that while there may be no per se duty to disclose such payments, “ERISA’s duty of loyalty may require a fiduciary to disclose latent conflicts of interest which affect participants’ ability to make informed decisions.”(8) The court stated that the lower court had failed to perform the required materiality analysis as to Braden’s revenue sharing claims, both as to the nondisclosure of and the unreasonableness of same, and therefore reversed that lower court’s grant of summary judgement on that claim as well.

The Braden court also addressed a number of technical pleading issues which trial attorneys will find interesting. In essence, the Braden court took the lower court to school and provided trial counsel with a useful overview of summary judgement issues in similar ERISA cases.

Tussey v. ABB, Inc.
While many may have heard or read about the Tussey decision, my experience has been that very few non-attorneys have actually read the case due to the fact that the decision was not published. Nevertheless, the potential impact of Tussey cannot be ignored.

Where Tibble clearly established fiduciary liability exposure for the selection and monitoring of a plan’s investment options and Braden provided a blueprint for attorneys with regard to summary judgement motions, Tussey addresses the issue of prudence, both substantive and procedural prudence. The key issues in Tussey involved the propriety of the process that the plan fiduciary used in deciding to replace a fund and the effect that revenue sharing payments might have had in said decision.

The court noted that while the use of revenue sharing is not per se imprudent, the receipt of any such benefits is prohibited under ERISA unless such benefit is incidental to the primary benefit to the plan’s participants and beneficiaries, thus complying with the fiduciary’s duty of loyalty, to act “solely” in the best interests of the plan’s participants and beneficiaries. The court found that the fiduciary,

failed to compare differences in expense ratios or revenue sharing percentages between the [two funds in question] or other balanced funds on the Plan platform, which affect an investment’s return. This they failed to make a prudent determination as to which investment would have been most appropriate [for the plan].(9)

The court stated that the fiduciaries had failed to engage in “a deliberative assessment of the merits” in making its decision to replace a fund in the plan, referring to the decision as “a careless, imprudent decision-making process.” The court based its decision largely on the large discrepancy in the expenses of the two funds in question and the resulting finding that the fiduciary’s decision was motivated by the revenue sharing payments that would result from replacing the existing fund.

From a liability standpoint for plan sponsors and other plan fiduciaries, as well as ERISA attorneys, the court’s position  of the “incidental” requirement for benefits received by plan fiduciaries should be particularly noted.

Because the decision to [replace the fund] was not made in the best interest of the Plan, the benefits reaped by ABB, Inc., are not merely ‘incidental.’ They are inconsistent with [the fiduciary’s] duty of loyalty. [The fund] was removed…so that ABB, Inc. could reduce its out-of-pocket costs for record keeping fees, and at the same time influence employee retention and recruitment, by offering a low-cost or ‘free’ retirement plan.(10)

The court goes to great lengths to emphasize that the fiduciary’s decision failed to meet the fiduciary’s duty of loyalty, on both a procedural and substantive basis.

The Elephant in the Room
The Tussey decision is currently on appeal, so there is the possibility that the decision could be reversed in whole or in part. However, given the fact that the decision is so well written and tracks ERISA so closely, I would be surprised to see the decision reversed.

In particular, the court’s rationale with regard to the “incidental” requirement for fiduciary receipt of benefits is consistent with ERISA, both its language and intent. Therefore, plan sponsors and other plan fiduciaries should review their plan documents and processes to ensure that any actions can be justified as being primarily in the best interests of the plan participants and beneficiaries.

I would suggest that an argument can be successfully made that many current practices by ERISA plans would not pass this standard. If the Tussey decision is upheld, I believe a question that has to be answered is at what point does the costs of revenue sharing to plan participants, i.e., the cumulative effect of higher fees, outweigh the purported benefits of revenue sharing, i.e., the reduction of a plan’s expenses.

Another “best interests” question that should receive more attention involves the actual cost efficiency of a plan’s investment options. The Braden-Tibble-Tussey trilogy touches on the issue of cost efficiency vis-a-vis prudence. The next rationale step would appear to be the analysis of the cost-efficiency of a plan’s investment options in terms of incremental costs and returns.

In his seminal book, “Investment Policy.” (now published as “Winning the Loser’s Game), Charles D. Ellis suggested that the proper way to evaluate investments is in terms of incremental performance, incremental costs as a percentage of incremental returns. By analyzing investments this way, investors can gain a more accurate cost-efficient evaluation of their investments.(11)

Ellis revisited this issue in a recent article. (12) For example, if a fund charges an annual expense fee of 1 percent, but only outperforms a benchmark index fund by 2 percent, the effective annual expense fee is 50 percent. One would be hard pressed to argue that such an investment was prudent.

Along those same lines, I created a proprietary metric, the Active Management Value Ratio (AMVR).  The AMVR allows investors, plan sponsors and other investment fiduciaries to quantify prudence by evaluating  an investment in terms of the incremental benefit of active management relative to the increase in an investment’s incremental fees. This cost efficiency metric allows one to determine if an actively managed investment is truly in a plan participant’s best interests, and in furtherance of ERISA’ stated goals.

The AMVR compares the investment’s excess incremental cost relative to the investment’s total cost, and then compares that figure to the investment’s excess incremental benefit relative to the investment’s total return.  For example if Fund A had an annual expense ratio of 1 percent and an annualized return of 20 percent, and Fund B had an annual expense ratio of 0.20 percent and an annualized return of 18 percent, you would have a situation where Fund A had a fee four times that of Fund B, yet producing only a 10 percent increase in return over Fund B’s return. Given this information, it would be hard to justify Fund A as a more cost efficient, more prudent investment than Fund B.

My experience with the AMVR has been that in most cases the added cost of active management far exceeds the benefit, if any, produced by active management, with incremental costs often exceeding any benefit by 200-300 percent, sometimes more. Given the fact that each additional 1 percent of fees and costs generally reduces an investor’s end return by 17 percent over a twenty year period, an AMVR analysis may offer additional proof that the choice of an actively managed investment is not prudent.

Evaluating an investment based on incremental costs clearly offers a more realistic analysis of an investment in terms of the best interests of a plan participants and furthers ERISA’s goal of fair and honest treatment of all plan members.(13) Unfortunately, the judicial system has failed to recognize this point, as courts continue to analyze expense ratios in terms of their absolute level and their level relative to the market.

While an absolute expense ratio may help estimate the impact of such expense over time, an absolute expense ratio alone does not allow one to effectively evaluate an investment in terms of the best interests of an investor.  The fact that several funds each have an annual expense ratio of  1 percent does not indicate that the funds are in the best interests of a plan or plan participants. Analyzing an investment based on its incremental costs and incremental return does allow for a “best interests” determination. Hopefully, the courts will have an LaRue-like epiphany and realize that they need to adopt an incremental cost/benefit approach to expense ratios in order to provide plan participants with the protections guaranteed by ERISA.


It is difficult to get a man to understand something when his salary depends on his not understanding it. – Upton Sinclair

The truth of the matter is that you always know the right thing to do. The hard part is doing it. – General Norman Schwarzkopf

It was not until 2008 that the Supreme Court realized the differences between defined benefit and defines contribution plans and provided defined contribution participants with the rights they needed to protect their retirement plans. With Tussey, the Eighth Circuit Court of Appeals has a chance to uphold the district court’s opinion and provide plan participants with the protection they need with regard to oppressive expenses and inequitable revenue sharing.

The district court’s decision in Tussey was a welcome breath of fresh air for plan participants, as it recognized the real issue of excessive expense ratios and the inequity of plan decisions being made based on the amount of revenue sharing payments that could be generated instead of the “best interests” standard mandated under ERISA. The Tussey decision was the last piece of the Braden-Tibble-Tussey trilogy, three decisions that progressively recognized the rights of defined contribution participants with regard to protection against excessive fees and improper revenue sharing arrangements, as well as the ongoing responsibilities and liabilities of Section 404(c) plans.

The quote from the late General Norman Schwarzkopf is a standard component of my closing argument in litigation and is especially applicable here.  For too long the protections guaranteed to pension plan participants by ERISA have been ignored and/or not enforced by the legal system. LaRue was a beginning. Hopefully, Tussey will be the next step in ensuring a fair, honest and equitable environment for pension plan participants.

© Copyright 2013, All rights reserved

This article is for informational purposes only, and is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances.  If legal, investment, or other professional assistance is needed, the services of an attorney or other professional advisor should be sought.


1. LaRue v. DeWolff. Boberg & Associates, Inc., 128 S. Ct. 1020 (2008)
2. Braden v. Wal-Mart Stores, Inc.,  588 F.3d 585 (8th Cir. 2009); Tibble v. Edison, Int’l, 711 F.3d 1061 (9th Cir. 2013), Tussey v. ABB, Inc., (not reported), 52 WL 1113291 (March 31, 2012)
3. Tussey, at *20
4. Tibble, at 595
5. Tibble, at 1086; Donovan v. Bierwirth, 680 F.2d. 263, 271 (2nd Cir. 1982); Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 299, 301(5th Cir. 2000)
6. Tibble, at 1070
7. Braden, at 599
8. Braden, at 600
9. Tussey, at *20
10. Tussey, at *23
11. Charles D. Ellis, Winning the Loser’s Game: Timeless Strategies for Successful Investing, 5th ed. (New York, NY: McGraw/Hill, 2010), 45, 139
12. Investment Management Fees Are (Much) Higher Than You Think, available online at
13. Braden, at 598.

1 Response to The Braden-Tibble-Tussey Trilogy – A LaRue Like Epiphany?

  1. Pingback: Ordinary Care, Reasonable Care and The Fiduciary Duty - The First in a Series of "Spectra" Posts | South Carolina Intellectual Property Litigation

Comments are closed.