District Judge Narrows Ruling Against AT&T Brokerage-Window Fees
A federal judge reconsidered and substantially revised a ruling in a long-running legal case against AT&T Inc.’s 401(k) plan, retreating from earlier conclusions that had alarmed employer groups and recordkeepers by suggesting “common” brokerage-window fee disclosures violated the Employee Retirement Income Security Act.
In an August 3 order, U.S. District Judge Sherilyn Peace Garnett, presiding in the Central District of California, granted AT&T’s motion for reconsideration in Alas v. AT&T, concluding that Fidelity Workplace Services’ June 2012 disclosure regarding indirect compensation was timely and that disclosure of brokerage-window compensation through ranges of fees can satisfy Department of Labor regulations under appropriate circumstances. Garnett allowed factual disputes about whether compensation paid in connection with the plan’s Financial Engines arrangement was reasonable to proceed toward trial.
The reconsideration marks a significant shift from the court’s March ruling denying summary judgment, a ruling that prompted concern across the retirement plan industry because it appeared to reject disclosure practices widely used by recordkeepers offering brokerage windows, according to an amicus brief filed in June by the ERISA Industry Committee, the American Benefits Council and the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute. The trade groups argued that if the decision stood, it could throw into question the compliance of virtually every defined contribution plan that offers brokerage-window investments.
AT&T sought reconsideration of the decision, arguing the court had overlooked Department of Labor guidance issued with the agency’s 408(b)(2) fee-disclosure regulations. Garnett agreed in part, acknowledging that the regulations did not become effective until July 1, 2012, meaning Fidelity’s June 27, 2012, disclosure could not have been untimely, as the earlier ruling had held. The plaintiffs conceded that point in their filing opposing reconsideration.
Garnett also reconsidered her earlier conclusion that Fidelity’s disclosure of indirect compensation in ranges failed to satisfy ERISA disclosure requirements. Quoting Department of Labor commentary accompanying the final 2012 regulations, Garnett noted that the agency had expressly stated that disclosure of expected compensation “in the form of known ranges” may constitute a reasonable disclosure method, particularly in circumstances under which brokerage-window compensation depends on investments ultimately selected by participants.
In the trade groups’ amicus filing, the organizations argued that brokerage windows routinely offer thousands of investment options, making investment-by-investment indirect compensation disclosures impractical, and warned the earlier decision threatened “seismic adverse implications” for retirement plans, service providers and participants.
According to the amici, brokerage windows differ fundamentally from designated investment alternatives because they provide participants access to thousands of securities beyond a plan’s core investment menu. The groups argued the DOL intentionally built flexibility into its disclosure regulations, permitting ranges where more precise disclosures would impose undue burdens, while providing little practical benefit to participants.
The dispute stems from the plaintiffs’ claims that AT&T fiduciaries failed to account adequately for indirect compensation Fidelity received through two arrangements: Fidelity’s BrokerageLink brokerage window and payments Fidelity received from Financial Engines (now Edelman Financial Engines) for access to Fidelity’s platform and participant data. Following a 2023 U.S. 9th Circuit Court of Appeals ruling reviving portions of the complaint, Garnett reconsidered whether AT&T could satisfy ERISA’s exemption permitting reasonable service provider arrangements despite otherwise prohibited transactions.
While the latest reconsideration ruling represents a significant victory for the defendants on the disclosure issues, it does not end the litigation.
Garnett left unresolved whether the compensation Fidelity ultimately received through the Financial Engines arrangement was reasonable, finding genuine factual disputes remain. The plaintiffs contend that AT&T failed to account adequately for millions of dollars in indirect compensation Financial Engines paid Fidelity. The defendants maintain they understood the arrangement, negotiated lower recordkeeping costs and acted prudently. The competing factual narratives are an issue to be resolved at trial.
