Last year, the Supreme Court ruled that pension plan trustees could be sued for including risky company stock in defined-contribution funds. Now, in a unanimous decision in the case of Tibble v. Edison International, the Court determined that trustees of retirement plans also have an ongoing fiduciary duty to choose lower cost mutual funds, when such funds are available. However, the Court stopped short of telling fiduciaries exactly how to monitor the fund, relying on the lower courts to sort that out on a case-by-case basis. The High Court also remanded Tibble back to the 9th Circuit to determine whether Edison breached its fiduciary duty in this particular set of circumstances. These rulings place increased fiduciary responsibility on plan sponsors to monitor investments on an ongoing basis and to review fees annually, a duty that is “separate and apart” from the duty to exercise prudence in selecting the investments in the first place.
Important Case Facts
In 1999, Edison International, through its subsidiaries, offered its employees retail-class mutual funds as part of its 401(k) plan, even though identical funds with significantly lower fees were available. In 2007, a group of employees led by Glenn Tibble sued the company under ERISA, stating that by including six higher-cost retail class mutual funds as investment options for the plan, the company breached its fiduciary duties to manage the plan prudently and “in continuing violation” of ERISA. The 9th Circuit Court cited the statute of limitations under ERISA, which bans claims filed over six years from the date the fund was offered.
In Tibble, The Supreme Court reversed the lower court’s decision, holding instead that the “breach or violation” triggering the six-year statute of limitations under ERISA does not begin when investments are selected, but whenever a trustee violates his or her fiduciary duty, which, according to the Court, is a “continuing duty.” In the 8-page decision, the Court also remanded the case to a lower court to decide whether the trustees had violated their fiduciary responsibility by failing to remove the high-cost funds from its investment choices.
Important Takeaways for 401(k) Plan Sponsors
- In Tibble, The U.S. Supreme Court rejected the notion that a six-year statute of limitations under the Employment Retirement Income Security Act dates from when those investments enter the fund.
- Plan fiduciaries will be held responsible for monitoring the appropriateness of funds and must remove those that are inappropriately expensive.
- Plan sponsors must also monitor the cost of fees.
- Lower courts will take a close look at factors including the frequency of review, the type of records the employer keeps and ongoing documentation.
- In remanding the case, The Supreme Court is being consistent in allowing lower courts to sort out the issues of tort and securities law.
Marsh & McLennan Agency formerly Benefits Resource Group can provide investment analysis and fee support through our fiduciary management processes and systems. We make sure our clients’ fees are competitive by using benchmarking analytic tools and going to the market periodically to obtain quotes. Marsh & McLennan Agency formerly Benefits Resource Group serves as a co-fiduciary along with plan sponsors and can work with you to ensure your plans are carefully monitored.
If you have any questions regarding this case or the fee structure of the plans you offer to your employees, we can help. Please contact Charles J. Farro at (216) 393-1812 or firstname.lastname@example.org for more information.
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