When you and your investment committee or management team are reviewing your 401(K) plan's performance, did you ever think the Supreme Court might ultimately be taking a look at what you are doing?
This is what happened a few months ago when the Supreme Court ruled on the Tibble V. Edison case. Essentially employees of Edison's 401(K) plan filed a lawsuit against the fiduciaries of the plan for not providing prudent investment options back in 1999. What was not so prudent about the investment options? Well, the plan offered three retail share classes of mutual funds as investment options instead of identical lower cost institutional share class mutual funds. The Supreme Court decided that the employees could file a breach of fiduciary duty complaint past ERISA's six-year statute of limitations and remanded the case to a lower court to decide the claims of the fiduciary breach.
Other 401(K) fee lawsuits have been coming to light as well. Just this year Ameriprise, Boeing and Lockheed Martin both settled lawsuits regarding excessive 401(K) fees. The settlements totaled $27.5 million in the Ameriprise case and $62 million in the Lockheed Martin case. As of this article date, no details were available for the Boeing settlement.
These lawsuits highlight the need for fiduciaries to understand their responsibility to the plan. Simply picking a handful of mutual funds and target date funds is not enough. As fiduciaries, you need to look at the Plan as a whole (i.e. investment options, diversification, plan fees, mutual fund fees, operating the Plan under ERISA rules and regulations, etc.) It is also extremely important to document meetings, investment policies and plan reviews in case any of your decisions come into question.
Being a fiduciary carries a lot of responsibility. It's important to know what these responsibilities are and make sure you are acting in a prudent and diligent manner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.