Edison Workers’ 401(k) Fee Challenge Revived by Ninth Circuit

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By Carmen Castro-Pagan

Edison International Inc. workers convinced an appeals court to revive their claim accusing the company of breaching its ERISA fiduciary duties by failing to monitor allegedly high fees charged in the company’s 401(k) plan ( Tibble v. Edison Int’l , 2016 BL 418555, 9th Cir., No. 10-56406, 12/16/16 .

The participants in Edison’s 401(k) plan didn’t forfeit their failure-to-monitor claims in relation to funds added to the plan outside the six-year limitations period under the Employee Retirement Income Security Act, a full panel of appellate court judges of the U.S. Court of Appeals for the Ninth Circuit held Dec. 16. Instead, Edison forfeited its argument that the participants had waived their claims by failing to raise it in the initial appeal, the court said.

The decision is a win for the Edison workers, who have litigated their lawsuit for almost 10 years. The case is significant because of the worker-friendly decision by U.S. Supreme Court in 2015 that made it harder for plan fiduciaries to have lawsuits over mutual fund fees dismissed on statute-of-limitations grounds. With the Ninth Circuit’s latest decision, the workers will have another chance to hold Edison plan fiduciaries liable for allegedly excessive fees.

New Trial

A district court had ruled in favor of Edison, holding that the triggering events alleged by the participants in relation to certain funds added before the six-year limitations period, or 2001, were insufficient to trigger a full diligence review under ERISA. The appeals court in April seemed to put an end to the case by holding that the participants had waived that claim by failing to raise it before their petition for Supreme Court review.

In a 180-degree turn, the appeals court reversed its previous opinion and vacated the district court decision related to the funds added to the plan before 2001. It remanded for trial on the participants’ claim that, regardless of any significant change in circumstances, Edison should have switched from higher-priced retail-class fund shares to less-expensive institutional-class fund shares.

The duty of prudence required Edison to re-evaluate investments periodically and to take into account its power to obtain favorable investment products, particularly when those products that are substantially identical—other than their lower cost—to products it had already selected, the court said.

Because the case has far “greater importance than the district court believed it did at the time of its earlier fee determination,” the appeals court judges instructed that court to re-evaluate its fee determination in light of the “significant amount of work that has been required to vindicate an important ERISA principle.” The district court had awarded $407,277 in fees and $3,732 in costs to the workers.

The opinion was issued by Judge Milan D. Smith Jr.

Schlichter Bogard & Denton represents the workers. O’Melveny & Myers LLP represents Edison.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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