Supreme Court Sides with Employees in 401(k) Dispute
On May 18, 2015, the United States Supreme Court ruled in favor of participants in a company sponsored 401(k) plan who claimed that the company violated its fiduciary duty with respect to certain mutual funds added to the plan. The case is Tibble v. Edison International.
The participants, beneficiaries of Edison International’s 401(k) plan, claimed that the company acted imprudently by offering six higher priced retail-class mutual funds as plan investments when materially identical lower priced institutional-class mutual funds were available. The participants claimed that the higher priced mutual funds cost them unnecessary administrative fees.
Expenses, such as administrative fees, can reduce the value of a 401(k) account – sometimes significantly.
The participants argued that Edison’s plan fiduciaries should have been reviewing these funds and converting them to lower priced funds. The participants sought to recover damages for alleged losses suffered by the plan.
The issue before the U.S. Supreme Court was the timeliness of the case. The Ninth Circuit ruled that the case was outside of the six-year statute of limitations for bringing claims because the funds were selected more than six years ago.
The Supreme Court disagreed. In a unanimous decision, the Court said that plan trustees have a “continuing duty to monitor trust investments and remove imprudent ones” (emphasis added). This “continuing duty” is separate and distinct from the initial duty to select prudent investments at the outset. If a breach of this continuing duty occurs within six years of filing a lawsuit, the lawsuit is timely.
The Court did not rule on the underlying merits of the case and did not decide what type of review is required by plan fiduciaries. The Court sent the case back to the Ninth Circuit for further review.