Retirement planning is a key financial goal for everyone in the workforce today. Ensuring that an individual or couple is properly investing to ensure there is enough for retirement is a critical component to any financial plan. In fact, most people today leverage their company’s retirement plan (401k or 403b) as a savings vehicle. Employees generally have faith that the employer is providing them with cost effective investment options and is acting in their best interest. However, what if your retirement plan does not offer the best investment options? A recent case ruled on by the Supreme Court made a significant change to these cases and term of liability for plan sponsors. To help clients, prospects and others understand the basics of the case, outcome and impact; we have provided a summary overview below.
The case heard by the Supreme Court, Tibble v Edison International was originally filed in California in 2007. The case which was initiated by employees participating in the company sponsored retirement plan alleges that Edison International did not properly discharge their fiduciary responsibility. The suit claimed that the company only offered expensive investment options (or “retail share class” options) when identical funds were available at a lower cost. There were also concerns that the company allowed excessive recordkeeping fees to be charged to participants and not the plan administrator.
The case which was heard originally in District Court and Ninth Circuit Court of Appeals initially found in favor of Edison International. The ruling was on the argument made by the company that since more than 6 years had passed since the alleged incident there was no basis to hearing the case because the statute to limitations had passed. When the case was heard by the Supreme Court the lower court decision was overruled. In a unanimous decision the Justices agreed that fiduciaries have an ongoing responsibility to monitor investments and make changes based on findings.
The Supreme Court did not issue a ruling on whether there was a breach. Instead they remanded the case back to the Ninth Circuit Court of Appeals. They requested that the lower court hear the case to determine whether the alleged breach in fact occurred.
While the Supreme Court did not make and specific decisions about liability the ruling does have significant implications. By defining fiduciary responsibility as an ongoing requirement this allows participants to go back further than six years to assess and determine whether a breach occurred. If so, it’s quite apparent from the ruling that those impacted can initiate litigation to hold the company responsible. Given the number of companies offering retirement plans this change creates a new risk factor that was previously not a concern. Companies that sponsor such plans need to revisit their policies and procedures to ensure prudent steps are being taken to protect plan participants and the company.
Do you have questions about your company’s plan fiduciary responsibility? Looking for assistance designing/reviewing assessment process for evaluating the plan investment options and costs? If so, then contact Barnes Dennig today! For additional information call us at 513-241-8313 or click here for email.