The effect of plan fee litigation on workers' retirement savings has sharply divided various industry groups, which filed competing amicus briefs with the U.S. Supreme Court in an upcoming case involving Section 401(k) plan fees (Tibble v. Edison Int'l, U.S., No. 13-550, arguments scheduled 2/24/15).
Groups taking an expansive view of workers' ability to challenge high-cost investments alleged that such litigation increased workers' retirement savings by driving mutual fund providers to compete with each other by lowering fees.
Groups on the other side of the dispute argued that these plan fee lawsuits should be limited, because they imposed unclear burdens and substantial costs on plan fiduciaries.
The case at the heart of this dispute asks whether 401(k) participants can hold fiduciaries liable for including higher-cost investment funds in the plan when those funds were initially chosen more than six years before the lawsuit. In recent years, three federal appellate courts have ruled in favor of plan fiduciaries in these disputes, finding that the participants' claims were barred by the six-year limitations period found in the Employee Retirement Income Security Act.
This six-year limitation has become a huge roadblock for retirement plan participants challenging higher-cost funds, because many funds remain in retirement plans for years after their initial selections.
The high court is scheduled to hear oral arguments on this issue Feb. 24.
Not So Costly
Many of the amicus briefs supporting the plan participants disputed the idea that allowing participants to challenge older funds would increase the cost of plan administration or burden fiduciaries in any significant way.
In particular, the AARP argued that requiring fiduciaries to prudently monitor existing investments mirrors industry standards and “merely embraces the procedures that plan sponsors and their fiduciaries should already be following.” The AARP quoted from a client advisory prepared by law firm Bryan Cave advising plan fiduciaries to meet at least quarterly to “consider information regarding performance, selection, and oversight of plan investments.”
Further, rather than being “earth shattering,” such a requirement likely would be an “Insignificant Undertaking” for plan administrators, as decisions about the suitability of a particular investment class “can be made using information readily available in the fund prospectus,” the AARP maintained.
In a similar vein, fiduciary consultant Cambridge Fiduciary Services LLC argued that because “many, if not most,” fiduciaries of large plans “already follow good monitoring practices,” allowing lawsuits like that of the Tibble participants wouldn't result in any significant increase in costs for these fiduciaries or employers.
Moreover, for those fiduciaries “who do not currently follow best practices,” Cambridge said it isn't asking much that they “spend a little more time every year minding their plans' fees and expenses—especially since they pass on much of the cost of such monitoring to their plans in any event.”
Along those lines, a group of law professors also filed an amicus brief in support of the Tibble participants, emphasizing that ERISA fiduciaries have an “ongoing” duty to monitor plan investments and that lawsuits like Tibble are valid attempts to hold fiduciaries accountable under this duty.
Excerpted from a story that ran in Pension & Benefits Daily (02/17/2015).
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