by Ashlea Eberling
Original Post Date: 5/19/2015
In a victory for workers and retirees with 401(k)s, the Supreme Court ruled in Tibble v. Edison that a 6-year statute of limitations does not bar workers from suing their employers for retaining imprudent investments in the workplace retirement plan.
The decision should push employers to conduct more frequent reviews of their 401(k) plans, shop around and negotiate for lower rates, and replace expensive retail-class funds in their investment line-ups. In the meantime, the burden is still on workers to pick their investments. Have you checked your 401(k) investment line-up and fees lately?
Tibble was one of the first 401(k) fee cases—the underlying issue was whether it was appropriate for a multi-billion dollar plan to offer retail-class mutual funds that were way more expensive than comparable institutional-class funds. Employers, as 401(k) sponsors, have an ongoing fiduciary duty to monitor plan investments and remove imprudent ones.
“The average person doesn’t necessarily know about the difference between institutional and retail fund fees; the fiduciaries are held to standards of knowing these matters; they’re the ones who should be monitoring and selecting funds with institutional fees,” says Jerome Schlichter, the plaintiff’s lawyer. “There are still billion-dollar-plus plans using retail funds,” he says.
How big is the “fee” problem? This year Schlicter negotiated a $27.5 million settlement with Ameriprise and a $62 million settlement with Lockheed Martin in excessive fee cases.
In Tibble, the district court awarded plaintiffs $370,732 in damages relating to excessive fees and lost investment earnings with respect to three retail-class funds that were put in the Southern California Edison plan within the statute of limitations period. The district court and the Ninth circuit said it was too late to sue over three other retail-class funds put in the plan more than six years before the lawsuit was filed.
Edison came around to agreeing that the duty of prudence involves a continuing duty to monitor investments, the Court wrote, adding that the parties “disagree, however, with respect to the scope of that responsibility,” and declining to rule on that point. “The Supreme Court punted, and resolution of Tibble’s most critical issues has been postponed,” says Marcia Wagner, an employee benefits lawyer in Boston.
So the meat of the case is back in the hands of the Ninth Circuit—to decide whether a review of the contested mutual funds is required, and if so, just what kind of review. That leaves employees at risk of a smaller retirement nest egg.