Tibble v. Edison Supreme Court Ruling

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Tibble v. Edison Supreme Court Ruling

The unanimous Supreme Court decision ruled that plan sponsors have a continuing duty to review investments in retirement plans.

Overview

What did the Supreme Court rule in Tibble v. Edison?

On May 18, 2015, the United States Supreme Court ruled on Tibble v. Edison International, handing down a rare 9-0 decision. The court ruled that fiduciaries of 401(k) plans have a continuing duty under ERISA (Employee Retirement Income Security Act) to monitor investments. In doing so, it rejected a lower court’s determination that a six-year statutory limit under ERISA applied.

WHY IS THIS IMPORTANT?

The decision puts fiduciaries on notice of their ongoing responsibility to monitor investments.

According to the Supreme Court ruling, this responsibility extends six years beyond the last date on which the fiduciary could take action, rather than the six years from purchase as previously ruled by the lower court.

It reminds fiduciaries and plan advisors to consider carefully any investment expense.

In the case of Tibble v. Edison, the plaintiffs claimed that, “Edison violated ERISA’s fiduciary duty of prudence by offering more expensive “retail class” shares of mutual funds, instead of relatively cheaper “institutional class” shares of the same funds.”[1]  The court ruled in the plaintiffs’ favor.

WHAT WAS THE BASIS OF THE RULING?

According to the National Law Review - “The Court couched its decision in traditional trust law, which requires a “regular review” of trust investments. The Court also found support in the Uniform Prudent Investor Act, which the Court viewed as embracing a continuing duty to monitor plan investments.” This further reinforces the need for fiduciaries and their advisors to ensure that they a monitoring plan in place.

THINKING AHEAD

The Supreme Court ruling places some additional pressure on plan fiduciaries, advisors and brokers. You may wish to:

  • Review the funds in the plans you manage to make sure there are not any potential liabilities in funds that may be been selected many years ago.
  • Consider whether you will be able to monitor accounts adequately in light of the Court’s recent decision.
  • Consider whether you can increase your standing in the market by offering 3(38) ERISA fiduciary services.

STAY IN THE LOOP

Broadridge Insights offers the information and perspective you need.  Advisors, Brokers, Plan Administrators, Insurers and Mutual Funds can stay up to speed on the latest regulations as well as industry best practices. Learn more at broadridge.com/retirement-insights.

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