The U.S. Supreme Court on Oct. 2 agreed to hear a case that, if overruled, could make 401(k) fee lawsuits by participants in employer-sponsored defined contribution retirement plans much easier.
The High Court granted plaintiffs’ petition for writ of certiorari in Tibble v. Edison International, (13-550), a case based on the cost and prudent selection of mutual funds originally added to the company’s plan in 1999. The 9th U.S. Circuit Court of Appeals’ ruling in 2013 (No. 10-cv-56406 (9th Cir, March 21, 2013)), decided the claims were time-barred because ERISA prohibits suits over investments added to a plan more than six years ago.
The class-action plaintiffs in Tibble — former employees and plan participants of Southern California electric utility Edison International — 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. 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.
In the appeal, in a cautionary point for plan sponsors and their advisers that may find themselves challenged on similar investment selections, the 9th Circuit judges ruled that Edison did not present sufficient evidence on how its investment consultant engaged in prudent consideration of share classes for the plan’s funds.
Amicus Brief Called for Hearing
Earlier in 2014, the High Court requested the opinion of the U.S. Solicitor General’s Office and the U.S. Department of Labor on two issues posed by the case, as they have implications for billions of dollars of U.S. workers’ retirement savings. The first was related to the six-year statute of limitations in ERISA, and the other regarded deference to a plan fiduciary in interpreting a plan document. The amicus brief submitted by the Solicitor General in August asked the Court to hear the first question but not the second presented.
The brief emphasized past case law that found that plan fiduciaries have a “continuing fiduciary duty” to “review plan investments and eliminate imprudent ones” that isn’t limited to a six-year period.
“The court of appeals erred in concluding that Section 1113(1) bars petitioners’ claims that respondents breached their duty of prudence by offering higher-cost retail-class mutual funds, rather than identical lower-cost institutional-class funds, because the higher-cost funds were first selected as plan investments before the limitations period,” the Solicitor General’s Office wrote, on behalf of the Obama administration.
The announcement of the Supreme Court’s granting cert for the Tibble case didn’t set an oral argument date. If heard in early 2015, a decision is likely to come between late spring and the end of the term in June.
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