The Ruling in Tibble v. Edison: Huge Victory for Participants

Posted on May 28, 2015 by Beth Krasnow

Supreme Court’s Ruling in Tibble v. Edison: Huge Victory for 401(K) Plan Participants

Beth Dworken Krasnow

On May 18, the United States Supreme Court issued its decision in Tibble v. Edison International, ruling that Plan Sponsors have a continuing duty to review investments in Retirement Plans and to decide whether or not to keep or sell them. This decision overruled the lower courts that barred the claim under the statute of limitations.

In its decision, the Supreme Court found that Plan Trustees “have a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.”

Since Plan Participants aren’t able to select the funds within their Plan offering, they rely on Plan Trustees, and other Plan Fiduciaries, to offer the best available funds at the best available pricing.  For most Americans this is the largest segment of their retirement savings and they look to Plan Fiduciaries to get it right.

In Tibble, Plan Fiduciaries offered higher-cost retail class funds when lower-cost wholesale (“institutional share class”) versions were available. The net effect of this action is that the participants’ investment returns are reduced by the higher fees of the investments. Lower returns = lower retirement savings. This is a lose-lose for everyone.

So, what is the takeaway from this decision?  Investment selections will be highly scrutinized and liability could be huge for those Plan Trustees that do not properly select, and continuously monitor, their fund selection.  It is no longer good enough to choose funds that perform well. The associated fees have to be weighed against the returns to ensure that Plan Trustees are offering appropriate investments to their Participants.  If same-dynamic, lower cost investments are available, can Plan Trustees afford not to offer them?  I don’t think so.

Pension Advisors has been offering our clients an Institutional Fund Program, in-line with the Tibble ruling. Our clients are offering their participants the best-of-the-best Institutional Share Class Funds regardless of their size or plan dynamics. Contact us for more information.