When you think about the headlines related to ERISA class action cases, you usually see a lot of settlements because very few ERISA litigation cases make it past discovery and the early pleading stages of the case. Why? First, litigation is expensive and includes the cost of attorneys, expert witnesses, depositions, travel costs, and more. Second, litigation involves both time and stress for key officers and personnel at the institution. Third, litigation requires the company’s (or university’s) deepest, darkest secrets to be revealed on the record (unless subject to privilege). ERISA cases present an even more compelling reason to settle, as ERISA is complicated – making it difficult to present a comprehensible case to a judge and his/her clerks. Given that so many cases settle, when there’s finally one that doesn’t, it’s critical to take note of the case’s outcome and what that means for plan sponsors. This case is Tibble v. Edison.
Last month, a California District Court found for the plaintiff employees, represented by St. Louis-based Schlichter, Bogard & Denton, in the case of Tibble v. Edison. Ending a decade of litigation, the court found that the plan sponsor and its financial advisors breached their fiduciary duty to the Plan and its employees.
This case is important because (1) it was one of only two 401(k) excessive fee cases to ever go to trial and result in a judgment on the merits; and (2) it is the only 401(k) excessive fee case to make it all the way to the Supreme Court. Further, the case offers the following lessons for plan sponsors:
- Meet Regularly: Fiduciaries and/or the Committee should meet at regular intervals and be prepared during such meetings to review the investments and take action thereafter, if needed. The holding suggests that meeting once per year to review the investments and/or share class and then make changes would be insufficient.
- Share Class Selection: Fiduciaries to the Plan should know the share classes available and be proactive about making a share class selection and/or changing share class when a new share class becomes available. When fiduciaries determine that they will not use a new, lower cost share class, the Plan’s fiduciaries should be able to articulate why and document such decisions (i.e., show a prudent process).
- Document Decisions for Investment Selection: This case is chiefly important because it establishes in writing that there is an ongoing duty to monitor the Plan’s investments. Accordingly, fiduciaries should document the fund selected (and associated share class) and over time continue to document the rationale for retaining funds and respective share class during the monitoring process.
The August 2017 finding against the defendants totals approximately $7.5 million in damages from 2001 to 2011, plus an additional $5.6 million in damages post 2011 (which was stipulated to this month), totaling approximately $13 million in damages to the plaintiffs. The only remaining item is attorneys fees, which the plaintiffs will seek in a coming motion before the court.
For more information about this case or similar cases that have settled, contact your Multnomah Group Consultant and be on the lookout for the 2017 Regulatory Update, which summarizes cases from the past year.
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