The United States Supreme Court has agreed to hear Tibble v. Edison International, a case in which the plaintiffs contend their ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to 401(k) plan participants, even though identical lower-cost institutional-class mutual funds were available.

Jamie Fleckner, a partner in and chair of Goodwin Procter’s ERISA litigation practice in Boston, discusses the origins of the case and its implications for 401(k) plan sponsors.

What is this case about?

It was a case where plaintiffs – participants in a large 401(k) plan – sued the employer that sponsored the plan and certain fiduciaries of the plan for allegedly excessive fees. There were a number of aspects of the fees that they alleged were excessive but, the key one that the Supreme Court will take on is the use of retail mutual funds – retail share classes of mutual funds on the investment line-up in the 401(k) plan – where the participants had said that there were cheaper share classes that were available and that the company and the fiduciaries had allegedly failed to consider using those cheaper alternatives.

The issue that the Supreme Court is [going to look at is] with respect to some of those mutual funds that had been added to the plan’s line-up more than six years before the employees brought their lawsuit. The lower court and the Ninth Circuit Court of Appeals agreed that the decision to use those funds was made outside of ERISA’s statute of limitations period and so the plaintiffs couldn't sue with respect to those funds.

Plaintiffs asked the Supreme Court to review that decision because they argued that since a fiduciary has an ongoing duty to review the investments in the fund – [and] even though those mutual funds were selected more than six years ago, they should still be able to maintain a suit under the theory that the fiduciaries should have been continually monitoring the funds. And it's a breach of that ongoing duty to monitor that was really at issue.

That's the question that the Supreme Court's going to look at, the application of the six-year limitations period.

 

What are the implications for plan sponsors if the Supreme Court decides that, yes, the plaintiffs do have a case or if they side with the lower courts?

Well, if the Supreme Court agrees that plaintiffs have a case, there are two things that will happen. One, just as a nuts-and-bolts matter, the case would go back to the trial court in the Central District of California, Los Angeles, and the plaintiffs would be able to re-argue liability as to those funds that were selected more than six years ago. The case would be reinstated. Right now the case is over, and if the Supreme Court rules for the defendants, that case itself is over.

The second thing, though, that would happen if the Supreme Court rules for the plaintiffs is, I think it would call into question how much protection a fiduciary could receive from the statute of limitations. If it’s the case that a fiduciary gets no comfort in [the] six-year limitations period, but can be sued for the lingering effects of decisions that were made more than six years ago, then it’s a real question about how much protection the statute of limitations affords. I think you could see more fiduciaries with more exposure because plaintiffs could bring suit even for things that happened 10 or 15 years ago, if they can claim that there's still a lingering effect.

 

And if the Supreme Court decides in favor of the defendants, then the lower court decisions will stand?

That's exactly right. The lower court decision stands and, depending what they say in their judgment, they could offer clarity to the lower courts about when it is that a fiduciary can have protection under the statute of limitations, at least the six-year provision of the statute of limitations.

 

Longer-term, is there anything in particular plan sponsors should be doing to get ahead of this issue?

I don't think there's anything specific with respect to the statute of limitations that a plan sponsor can do to get out ahead of the issue. I think the underlying case was one where the plan sponsor wasn’t able to show at trial that they had considered different share classes of investments. And certainly if a plan sponsor is able to demonstrate when they’re making investment selections that they looked at alternatives or if they can demonstrate why it was they selected the alternative that they did select, that continues to offer protection for fiduciaries and plan sponsors.

I don't know whether this specific issue of the statute of limitations will result in the Supreme Court saying something about that. I would say, more generally, you never do know what the Supreme Court will say when it looks at a case and this will be the first time the Supreme Court looks at one of the excessive fee cases that have been brought under ERISA. Even though it’s only looking at the narrow question of the statute of limitations in issuing its decision, it could talk about any aspect of the fee case that it feels is important to opine on.

I think it’s going to be a decision that plan sponsors will want to be on the lookout for because it’ll be the first time the Supreme Court’s talked about the fee cases, and it will certainly be interesting to see what the Supreme Court has to say.

 

Do we know when the Supreme Court is going to hear the case?

We don't. There will be briefs that both sides will be able to submit to the Supreme Court and I assume there will be amicus briefs, or friend-of-the-court briefs, filed by different entities, including probably the government. Our best guess at this point is that there will be an oral argument sometime in the January-February time period and that a decision will come out by the end of the court’s term in June 2015.

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