On Feb. 24, the first retirement plan “excessive fee” case was heard by the U.S. Supreme Court. It raises the question of how long a fiduciary must monitor its employer-sponsored plan’s investments — or whether that duty can instead be measured at a single point in time. A lower-court ruling had found the ERISA claim at issue to be time-barred, but if that decision is overruled by the High Court, 401(k) fee lawsuits by participants could become much easier to wage.
The case, Tibble v. Edison International (No. 13-550), is based on the cost and prudent selection of mutual funds originally added to the California electric utility company’s plan in 1999. The 9th U.S. Circuit Court of Appeals’ ruling (No. 10-cv-56406 (9th Cir., March 21, 2013)), decided the plaintiffs’ claims of excessive fees were time-barred because ERISA prohibits lawsuits over investments added to a plan more than six years ago, barring “changed circumstances.”
Since then, amicus briefs filed in the Supreme Court case have indicated both sides agree that the duty to monitor is continuous. So the outcome of the case will hinge on a technical issue, but could have broad implications.
Case May Be Dismissed
Some Tibble observers speculate it could be dismissed, “if the employees can’t persuade the Court that the Ninth Circuit in fact applied the rule that the plan declines to defend; now that the Court has granted review, they’ll probably look hard to justify a reason for keeping the case,” wrote SCOTUSblog contributor Ronald Mann on Feb. 17, before the hearing. Edison lawyers supported that tack at the hearing.
The class-action plaintiffs in Tibble claimed that Edison breached its fiduciary duties in a procedural way by not investigating lower-cost share options for the company’s 401(k) plan options, among other actions. On the recommendation of its investment adviser, Edison selected retail-class shares for mutual funds offered in the 401(k) plan. At the time of litigation (the complaint was filed in 2007), the Edison plan was valued at nearly $4 billion and had about 20,000 participants, which would have entitled it to lower institutional fee levels.
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