Please ensure Javascript is enabled for purposes of website accessibility
Home / Opinion / Employment – ERISA – breach of fiduciary duty

Employment – ERISA – breach of fiduciary duty

ERISA; breach of fiduciary duty

It does not violate ERISA for a an employer to offer employees a wide array of mutual funds in which to invest, including funds that advertise heavily.

“Plaintiffs’ theory is paternalistic. They appear to believe that participants should prefer captive funds, even with loss of liquidity, and should not be allowed to invest in the funds from the Fidelity Group that Exelon’s Plan now offers. According to plaintiffs, participants like these mutual funds for ‘the wrong reasons,’ such as advertising. Since the seminars that Exelon offers have not dissuaded the participants from continuing to commit what plaintiffs call mistakes, they want the judiciary to force Exelon to make these investments impossible. Hostility to advertising has a long history, reflecting a belief that advertising is costly and thus must drive price up; but available data suggest that advertising promotes competition, which drives price down by more than the costs of the ads. See, e.g., Lee Benham, The Effect of Advertising on the Price of Eyeglasses, 15 J.L. & Econ. 337 (1972); Craig A. Depken II & Dennis P. Wilson, Is Advertising Good or Bad?, 77 J. Business S61 (April 2004); John Rizzo, Advertising and Competition in the Ethical Pharmaceutical Industry, 42 J.L. & Econ. 89 (1999).”

“For current purposes, it does not matter whether advertising is good or bad; all that matters is the absence from ERISA of any rule that forbids plan sponsors to allow participants to make their own choices. Far from reflecting a paternalistic approach, the safe harbor in §1104(c) encourages sponsors to allow more choice to participants in defined-contribution plans. Exelon offered participants a menu that includes high-expense, high-risk, and potentially high-return funds, together with low-expense index funds that track the market, and low-expense, low-risk, modest-return bond funds. It has left choice to the people who have the most interest in the outcome, and it cannot be faulted for doing this.”


09-4081 & 10-1755 Loomis v. Exelon Corp.

Appeals from the United States District Court for the Northern District of Illinois, Darrah, J., Easterbrook, J.

TAGS: 7th Circuit Digest, Civil Digest, Employment Digest

Full Text

Leave a Reply

Your email address will not be published. Required fields are marked *