U.S. Supreme Court Rules on 401K Lawsuit, Gives Investors More Protections

The nation’s highest court has just made it easier for workers to sue their 401k plans for charging excessive fees for investments. The case is Tibble v. Edison International, and the U.S. Supreme Court ruled unanimously for the ex-workers of Edison International.

The plaintiffs contended that the plan fiduciaries’ decision to choose six retail-class mutual funds (out of the forty selected for the retirement plan) was based on the higher fees that these funds charged, compared to institutional class funds that were also allegedly available to investors. Under the Employee Retirement Income Security Act (ERISA), retirement plans that are sponsored by an employer have a fiduciary obligation to choose investments that are appropriate and remove any that cease to meet the criteria set up in the investment policy statement.

Five years ago, the U.S. District Court for the Central District of California awarded the plaintiffs a $370,732 judgment over damages involving the high fees in three of the retail share class funds at issue. The claims against the other three funds are the ones that went to the 9th U.S. Circuit Court of Appeals and now the Supreme Court.

This court essentially found that it is the job of plan fiduciaries to regularly assess retirement plan investments and get rid of imprudent ones. The justices said that this duty separate from a trustee’s obligation to be prudent when choosing the investments for a plan.

The case raised questions over ERISA’s six-year statute of limitations for breach of fiduciary duty and whether this protects fiduciaries that kept imprudent investments in the plans even if they were added over six years ago. Tibble was filed in 2007. The holding of the Supreme Court broadens how much time investors have to file this type of case because it determined that the six-year statute didn’t start running right when the investments were bought.

The court has sent the lawsuit back down to the 9th circuit, which will determine how to calculate that deadline. The appeals court will also decide how frequently and intensely fiduciaries must go over their plans’ investments in order to fulfill their monitoring obligations. It was the 9th circuit that threw out TIbble because it was filed after the six-year statute.

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Tibble v. Edison International

Employee Retirement Income Security Act