Government Backs Top Court Review of 401(k) Plan Fee Case

The Solicitor General filed the brief in response to an earlier request from the Supreme Court, which sought the Solicitor General’s view on whether the 9th U.S. Circuit Court of Appeals might have erred in finding some imprudent investment claims against retirement plan fiduciaries at Edison International could be time-barred by the Employee Retirement Income Security Act’s (ERISA) six-year limitations period.

By way of background, one of the duties of the U.S. Solicitor General is to help determine the cases in which Supreme Court review will be sought by the federal government, as well as to develop the positions the government will take on certain issues before the court. The United States, via the Solicitor General, is involved in approximately two-thirds of all the cases the U.S. Supreme Court decides each year. 

In this instance, the Solicitor General’s brief states that the Tibble v. Edison case warrants the Supreme Court’s review on the class action claim from plaintiff Glenn Tibble that the Edison company was not acting in the sole interest of plan participants when it selected higher-cost investment options from its retirement plan services provider when lower-cost options were available.

The case has a complicated procedural background, but court documents show that, during the initial bench trial, a district court held that Edison had breached its duty of prudence by offering retail-class mutual funds as plan investments when identical lower-cost institutional funds were available. But the court subsequently limited that holding to three mutual funds that had first been offered to plan participants within the six-year limitations period—meaning mutual funds placed on the plan menu more than six years before the date of the ERISA-based complaint were excluded from the decision.

Tibble and counsel appealed that decision to the 9th Circuit, but the appeals court upheld the district court’s decision to limit the settlement to the three mutual funds adopted within the ERISA limitations period. This brings us up to the current brief, in which the Solicitor General sides with Tibble on the argument that such claims should not be time-barred—mainly due to the plan fiduciaries’ ERISA-mandated duty to periodically review investment options.

The plaintiff’s attorney in the Tibble case, Jerome Schlichter, of Schlichter, Bogard & Denton, tells PLANADVISER that the brief also suggests a win on another pending petition for certiorari filed in one of the firm’s other cases, Tussey v. ABB Inc. The Solicitor General refers to Tussey v. ABB Inc. in the brief (page 22, in footnote 8), citing similarities between the cases related to disloyalty and imprudence claims.

The original complaint addressed in the Solicitor General’s Tibble brief alleged that Edison International had placed 401(k) plan participants in high-cost retail mutual funds when cheaper, institutional funds were available. In turn, according to the compliant, the California-based utility company received a reduction on their recordkeeping fees and other plan administration costs. 

According to Schlichter, the case hinges on whether an employer or other plan fiduciary can avoid liability for imprudent investment options in a 401(k) plan if those options have been in the plan for longer than ERISA’s six-year statute of limitations. Schlichter says the Solicitor’s brief supports the plan participants' interest in the matter, who argued that Edison and other plan fiduciaries had an ongoing duty to review plan investments and remove imprudent ones, including with respect to funds first included more than six-years prior to their lawsuit.

Edison International, on the other hand, successfully argued on appeal to the 9th Circuit that the participants could not bring a case for excessive fees charged by mutual funds that had been in the plan for longer than six-years (see “9th Circuit Affirms Ruling in Retail Fund Dispute”).

In the words of the Solicitor General, the circuit court decision “effectively exempts plan fiduciaries from important ongoing fiduciary duties” and “fails to protect plan participants’ retirement savings.” The Solicitor General argues that under the 9th Circuit’s decision, “fiduciaries would have no incentive to monitor and update plan investments, and they could retain imprudent investment options forever (absent changed circumstances) once the investment options have been available for more than six years.”

Schlichter says this would mean that a participant who invested in the plan more than six years after the initial decision to include an investment option could never sue, even if the investment was an obviously imprudent one. And a person who became a fiduciary after the limitations period would be immunized from liability even if he never reviewed the investments—something he is expressly required to do by ERISA.

“The impact of this important issue cannot be overstated, given that over $4.2 trillion of retirement assets are invested in employer-sponsored 401(k) plans in the United States,” Schlichter adds.

Schlichter’s firm has brought a long list of controversial cases involving claims of excessive fees against other companies, including Krueger v. Ameriprise Financial; Gordan v. Mass Mutual; Abbott v. Lockheed Martin; Grabek v. Northrop Grumman; and Spano v. Boeing. (See “Fee Suit Litigator Discusses Best Practices.”)

The Solicitor General’s brief is available here.