A flurry of 401k litigation arose in the 2000s over the manner in which 401k plan sponsors select the investment choices and how those choices relate to the fees charged to the plan for various plan services and investments. 401k plan sponsors have fiduciary obligations to operate the plan prudently. 401k litigation asserts breaches of these fiduciary duties through relationships between the plan sponsor and outside service vendors.
Most assert conflicts of interests or lack of due diligence in fee arrangements to pay outside service vendors. For example, selecting investments with high rates of revenue sharing to shift the cost of services from the plan sponsor to participants through investment fees.
These 401k fee lawsuits have met a variety of responses from federal courts. I’ve written about several of these 401k lawsuits in the past. Although I am pessimistic about the ultimate approach of the Supreme Court on this issue, SCOTUS came down in favor of plan participants in its opinion in Tibble v. Edison International this week. SCOTUS decided plan administrators have an ongoing duty to monitor 401k investment choices for prudence.
Background on Tibble v. Edison International
Way back in 2007, Tibble and other participants in the Edison International 401k plan filed suit alleging the 401k plan sponsor and related parties breached fiduciary duties by adding mutual funds in 1999 and 2002 with unreasonably high management fees. They alleged fees were too high for what the 401k plan could have negotiated given the size of the plan. (Large investors receive access to mutual fund shares with lower management fees.) Tibble focused on what extent that duty is ongoing.
One reason why the continuous nature of the duty matters is whether the plaintiffs’ claims were barred by ERISA’s six year statute of limitations for breach of fiduciary duty. The Ninth Circuit held that the limitations period began to run when the sponsor added the investments in the plan. Therefore the law barred claims related to the 1999 fund additions. The plaintiffs subsequently filed a writ of certiorari and SCOTUS agreed to hear the matter.
Fiduciary duty to review 401k plan investments
This week’s SCOTUS opinion in Tibble held that the fiduciary duty to review plan investments for prudence is ongoing. The mutual funds may have been prudent when first incorporated. The same funds may have become imprudent as time went on. Therefore the claims would not be barred if the defendants failed to continuously monitor the investments within the limitations period.
The opinion narrowly addresses the ongoing duty to review investments under the statute of limitations issue. It leaves open unresolved issues, most importantly what acts by plan fiduciaries satisfy the duty to continuously monitor plan investments. SCOTUS may have breathed new life into some of the plaintiffs’ claims but Tibble is far from over. There are still many issues in this and other 401k lawsuits unresolved.
Tibble may mean less for plan beneficiaries now that it might have a few years ago. Changes to ERISA regulations promulgated by the Department of Labor in recent years, partially encouraged by decisions in other 401k litigation, has encouraged many plan fiduciaries to conduct annual reviews of vendor contracts and investment choices that may well satisfy the duty to continuously monitor the investment choices in the plan.
Employee benefit attorneys for 401k and other benefit problems
If you believe your employer or union violated ERISA by improperly selecting investments in a retirement plan then you should talk to an employee benefit attorney. Law firms that represent clients in ERISA matters understand the complex laws governing these plans. They can help you assess whether there is a case against your employer or union and what steps you can take to seek justice. Learn more by contacting employee benefit attorneys in your area.