Retirement planning is a key financial goal for almost everyone in the workforce today.
Ensuring that an individual or couple is properly investing to ensure there is enough for retirement is a critical component to any financial plan. In fact, most people today leverage their company’s retirement plan (401k or 403b) as a key retirement savings vehicle. Employees generally have faith that the employer is providing them with cost-effective investment options and is acting in their best interest. However, what if your retirement plan does not offer the best investment options? Plan participants need to be concerned not only with the actual investment choices made available but also the cost to purchase, sell and administer such transactions as well. A recent case ruled on by the Supreme Court made a significant change to these cases and term of liability for plan sponsors. To help clients, prospects and others understand the basics of the case, outcome, and impact; we have provided a summary overview below.
The case heard by the Supreme Court, Tibble v Edison International was originally filed in California in 2007. The case which was initiated by employees participating in the company-sponsored retirement plan alleges that Edison International did not properly discharge their fiduciary responsibility. The suit claimed that the company only offered expensive investment options (or “retail share class” options) when identical funds were available at a lower cost. There were also concerns that the company allowed excessive recordkeeping fees to be charged to participants and not the plan administrator. Finally, plan management agreed to use only proprietary investment options from the recordkeeping company which allowed for the reduction of other fees paid by the employer.
The case which was heard originally in District Court and Ninth Circuit Court of Appeals initially found in favor of Edison International. Now the reason for this had nothing to do with the case specifics per se, but the argument that the statute of limitations for ERISA cases which is set at 6 years had passed. As such they could not hear the case and make a decision. When the case was heard by the Supreme Court that notion was overruled because plan fiduciaries have an ongoing responsibility to monitor investments, assess quality and value and make modifications based on those findings.
Rather than making any ruling on the matter the Supreme Court decided to remand the case back to the Ninth Circuit Court of Appeals. The directive requires them to hear the case and decide whether or not Edison International did indeed breach their fiduciary responsibilities as alleged in the lawsuit.
While the Supreme Court did not make and specific ruling about whether a breach of responsibility occurred the ruling does have a significant impact on plan administrators. By defining fiduciary responsibility as an ongoing requirement this allows participants to go back further than six years to assess and determine whether a breach occurred. If so, it’s quite apparent from the ruling that those impacted can initiate litigation to hold the company responsible. Given the number of companies offering retirement plans this change creates a new risk factor that was previously not a concern. Companies that sponsor such plans need to revisit their policies and procedures to ensure prudent steps are being taken to protect plan participants and the company.
Do you have questions about your company’s plan fiduciary responsibility? Looking for assistance designing/reviewing assessment process for evaluating the plan investment options and costs? If so, then contact Hanson & Company today! We can work with you to create a process that ensure timely and proper review of investments ensuring participants are receiving the best value in plan options. For additional information call us at (303) 388-1010, or click here for email. We look forward to speaking with you soon.