Commentary: Yesterdays ruling in Tibble vs. Edison turned up the heat on employers who offer retirement plans. The ruling went in favor of the plaintiffs, and is just one of 13 similar class-action lawsuits in the past eight years. The increasing pressure these cases have put on companies and plan sponsors seems to finally be making a difference.
The employer-based retirement plan model has been full of flaws for years, and this ruling is a step in the right direction. Tibble vs. Edison is just one example of the flurry of recent high profile lawsuits in the corporate retirement space. The ruling ensures the number of lawsuits will continue to grow, and helps protect employees from an employers negligence or revenue-sharing plans.
The ruling means that 401(k) plan sponsors now must continuously monitor the investment options they offer participants. This will make it easier for employees to push lawsuits over excessive fees and underperforming funds. While there have been many previous lawsuits, this one carries a significant amount of weight in making it easier for investors to sue over bad 401(k) plans.
Plan advisers were already facing heightened scrutiny from the DOLs proposed fiduciary rule, and this ruling further solidifies their responsibility. While a number of lawyers are sure to benefit from the ruling, plan sponsors and participants should be a bit concerned. The ruling does help protect employees from high-fee, low-performance 401(k) plans, but it may also help take employer-sponsored plans away from them completely.
In the wake of this ruling, were sure to see a number of employers eliminate their plans altogether, as the added liability may not be worth hassle. As employers start dropping their 401(k) offerings, many more consumers could be left to fend for themselves when it comes to retirement.
Chris Markowski has carried the titles of author, investment banker, equity analyst, muckraker, all around trouble-maker, and most importantly consumer advocate. He is the personality behind Watchdog on Wall Street and founder of Markowski Investments.
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