The Supreme Court of the United States has ruled that workers can sue their employers over high fees in their 401(k) plan offerings. Workers have complained for years about being forced to choose high fee investment options in their 401(k) plans because of a lack of other options. In a 9-0 decision, the justices decided that employers could be sued if their retirement plans offer employees mutual funds with unnecessarily high fees. The investment options that are chosen for 401(k) plans are often up to the discretion of the plan manager.
The ruling revives a lawsuit against Edison International, Tibble vs. Edison International, in which employees claimed that they were steered into high fee investments for their retirement plans, even though lower-priced “institutional” funds were available. Current and former workers of Edison International, a Rosemead, California public utility holding company, claimed that six retail-class mutual funds selected as investment options by plan fiduciaries were imprudent due to charging higher fees than identical institutional-class funds made available to large investors. The employees that brought the lawsuit cited the federal retirement law in its case, which states that retirement funds should be operated in trust and with “prudence” for the “exclusive” benefit of the employees.
The U.S. 9th Circuit Court of Appeals, which previously ruled on the employees’ case against Edison, threw out most of the suit because it came more than six years after the disputed mutual funds were first offered to their employees, based on the Employee Retirement Income Security Act’s (ERISA) six-year statute of limitations. The Supreme Court justices stated in their ruling that any statute of limitations did not apply to the case because employers have a continuing obligation to protect workers and in the case in question, the higher-cost funds remained in effect.
In this most recent decision, the Supreme Court ruled that the company had a duty to monitor the funds it offered and to make sure they remained prudent investments under trust law. The matter now returns to the federal courts in California for a decision on whether Edison had “breached” its “fiduciary duty in this case.”