On May 18, 2015, the US Supreme Court (SCOTUS) announced an important ERISA plan decision in Tibble v. Edison International. [135 S. Ct. 1823 (2015)] The Supreme Court held that 401(k) plan fiduciaries have a duty to prudently monitor a plan’s investment options. The key issues in this case were whether retail or institutional share classes were prudent for the Edison plan, and the applicability of the statute of limitations to committee decisions. Following this ruling, the Journal of Pension Benefits asked us to posit an opinion on the practical impact of the courts decisions.  You can find our analysis and opinions in the article. To view the article, visit https://www.unifiedtrust.com/documents/Pages%20from%20JPB_Autumn15.pdf.

As we analyzed and review the courts overall opinion on the case, the industry put out many articles and pieces pressing the idea that this case was about the Duty to Monitor.  After reading the court papers, we came to a different conclusion.  We found that the SCOTUS opinion was really about the duty for plan fiduciaries to follow governing plan documents.  The court found that Edison actually had all of the requisite analysis and investigation that a good fiduciary should have when making investment decisions.  However, in this case, the plan’s decision to choose to replace less expensive funds with more expensive funds wasn’t found to be imprudent on the investment merits, but rather caused the plan to breach a clause in their plan documents which stated that the plan sponsor, rather than the participants, would be paying for all administrative/operational expenses.  When they made the switch, the new funds actually subsidized the plan’s recordkeeper with moneys stemming from investment expenses paid for by the plan participants.  In making this change, the plan expenses were now being paid for by BOTH  the plan sponsor and the participants.  This was overlooked in Edison’s decision-making process and thus caused the fiduciary breach in the form of a plan document breach.  SCOTUS then sent the case back to the lower courts.

The real important takeaway from the SCOTUS decision on Tibble v. Edison International is this; when all else fails, always follow the plan document!