Supreme Court Issues Landmark 401K Fees Ruling

The Supreme Court recently issued a landmark ruling on a key 401k fees lawsuit revolving around ERISA fiduciaries, stating that 401k plan providers have a duty to monitor the investment plans they offer.

In the initial 401k class action lawsuit, Tibble v. Edison, participants in the 401k plan sponsored by California-based utility Edison International argued that they were being charged excessive 401k fees.

The 401k class action lawsuit, which is part of a wave of 401k fees class action lawsuits filed against financial firms and other companies that allege mismanagement and inappropriately high 401k fees, was the first to reach the Supreme Court.

The 401k class action lawsuit was originally filed in August 2007 in the U.S. District Court for the Central District of California and centered on six retail mutual funds in Edison’s 401k plan menu, which were offered instead of cheaper institutional share classes.

Overview of Tibble v. Edison

Under the federal Employee Retirement Income Security Act, companies that sponsor 401k plans have a “fiduciary responsibility” to act in the best interest of their employees. The 401k lawsuit claimed that Edison breached this duty in the case of six of its fund options, where almost identical offerings charging lower fees were available.

But Edison argued that under the federal law’s statute of limitations, 401k plan participants can only sue based on funds that have been in the plan six years or less. As a result, it said that it couldn’t be held liable for three of the six funds in question, since they had been in the plan since 1999 and the 401k class action lawsuit wasn’t filed until 2007.

Both a federal district court and an appeals court agreed with Edison and the 401k plan participants appealed those rulings all the way to the Supreme Court.

The Supreme Court held in Tibble v. Edison that ERISA fiduciaries or 401k plan sponsors have an ongoing duty to monitor the plan’s fund offerings, beyond the six-year statute of limitations.

This ruling significantly undercuts the use of a statute of limitations defense that had been successfully deployed by plan fiduciaries in previous cases, and it creates ground for more 401k litigation.

What Does This Ruling Mean for 401k Participants?

While Tibble v. Edison centered on a technical issue, the decision in favor of the 401k participants reinforces the fact that employers must use their buying power to get the best possible 401k deal for their employees.

Essentially, the Supreme Court ruling has made it easier for plaintiffs to bring fiduciary breach claims by unanimously holding that ERISA fiduciaries have a continuing duty to monitor 401k plan investments.

Based on this, the court ruled that 401k plan participants may sue fiduciaries under ERISA for offering investment options that were allegedly too expensive, even if the investment plans were selected more than six years before the complaint is filed.

While plaintiffs will only be able to reach back six years from the date of a fiduciary breach complaint, the ruling may help press lawsuits over underperforming funds and excessive 401k fees.

Join a Free 401K Class Action Lawsuit Investigation

If you believe you have been overcharged for 401k fees by your employer’s retirement plan, or that the investments were otherwise imprudent, you may be eligible for a FREE class action lawsuit investigation and pursue compensation for these violations.

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