Do we need the Supreme Court to tell us this
The retirement blogs are abuzz about the recent Supreme Court decision in Tibble v Edison. Basically, the Court found that Fiduciaries of a 401(k) plan have a duty to perform ongoing monitoring of the investment options offered in the plan. Seems pretty basic. In this case, Edison allowed (in Tribble’s and the Court’s opinion) poor performing investment options that spun off lots of revenue sharing to remain in the plan.
Edison argued that the investments were:
- Solid performers
- Plan fees were reasonable at the time the investments were added to the plan.
- The statute of limitations had passed (over 6 years from when the investments were first offered)
As such, Edison held that the statute of limitations started when the investment was added, even as it remained in the plan year over year. Incredibly, Edison held on to this argument even in regards to the plan paying higher and higher fees via revenue sharing as the plan balance grew larger and larger. A interesting argument at best, and oddly successful in the 9th Circuit Court of Appeals. The Supreme Court reversed the 9th Circuit opinion. (And it was not close. The Supremes ruled for Tibble 9-0)
If you are a Plan Sponsor or Fiduciary you may wonder what this means to you. The easy answer is nothing if you are monitoring the funds in your plan on an ongoing basis and taking action when necessary. Many of the news stories aren’t providing any real context to the decision, just “Fiduciaries held liable for investment failures”. They aren’t being held liable for investment failures – but for a failure to monitor investments.
Tim Wulfekuhle