Attorneys who represent defined contribution plan sponsors
and DC plan consultants say the U.S. Supreme Court's recent decision in Tibble
et al. vs. Edison International has created uncertainty for plan executives. While
the court's unanimous ruling reaffirmed and clarified what plan executives
should have been doing all along — continuously monitoring investments — it
didn't establish guidelines for that monitoring.
Other attorneys said the decision highlights that
fiduciaries' inconsistent monitoring and inadequate record keeping are a
prescription for trouble. James P. McElligott Jr., a Richmond, Va.-based
partner for McGuire Woods LLP, said the need for action is heightened by the
ruling that fiduciaries' responsibilities aren't restricted by an ERISA
six-year statute of limitations for suits alleging breach of fiduciary duty.
The Supreme Court has told fiduciaries “to take seriously
their responsibility in time and in effort,” said Nancy Ross, a Chicago-based
partner for Mayer Brown LLP. Although
the Tibble case focused on fees for plan options, prudent fiduciaries will look
at the instructions by the court as meaning more than a duty to monitor investments.
Mr. Blumenfeld said he wasn't sure whether the court's
ruling would lead to more lawsuits, but noted it could lead to higher damages
assessed through verdicts or settlements and higher plan costs due to
litigation expenses. The Tibble case started in August 2007 with a class-action
lawsuit filed by 401(k) participants against Edison International Inc.,
Rosemead, Calif., a utility holding company, and others associated with the
Edison plan. The suit was filed in the U.S District Court for the Central
District of California.
The participants alleged plan executives violated their
fiduciary duty when they chose retail shares for mutual funds over lower-priced
shares for the same investments. They challenged six mutual funds — three that
were added to the plan lineup in 1999 and three that were offered beginning in
The District Court in 2009 dismissed the claim for the 1999
funds, citing the six-year statute of limitations for filing a fiduciary breach
claim that is part of the Employee Retirement Income Security Act. However,
after a trial, the court in 2010 ruled in favor of the participants regarding
the 2002 mutual funds, awarding them $370,732 in damages. The participants
appealed the ruling on the 1999 funds, and the 9th U.S. Circuit Court of
Appeals upheld the decision in 2013. Participants then petitioned the Supreme
Non-binding in other
If the appeals court offers guidelines, its decision will
affect only ERISA-covered DC plans in the 9th Circuit's area — California,
Nevada, Alaska, Hawaii, Idaho, Washington, Oregon, Montana and Arizona. If the
appeals court sends the case back to the District Court where the Edison ruling
originated, ERISA attorneys said litigation might go on for several more years
unless there is a settlement.
Attorneys and consultants said fiduciaries shouldn't wait
for follow-up litigation, maintaining that an ounce of fiduciary prevention can
protect against a pound of litigation. Monitoring covers regular appraisals of
fees, fund performance, risk, style drift and “organizational stability” —
whether fund managers leave — on a quarterly basis, she said.
Ms. Lucas conceded that lower-court interpretations of the
Supreme Court ruling remain a wild card for plan management. Consultants say
the best defense in ERISA legal challenges is documenting the process for their
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