A victory for the plaintiffs in the U.S. Supreme Court review of Tibble vs. Edison International has the potential to open the floodgates to new claims against plan sponsors.
Perhaps more dramatically, it could also upend the type of investments offered to 401(k) participants.
"The stakes in this case could not be any larger," said Marcia Wagner, principal of the Wagner Law Group, a Boston-based law practice that specializes in the Employee Retirement Income Security Act.
At the heart of the case — the first 401(k) excessive-fee case the Supreme Court has agreed to hear – are two core provisions of ERISA's statute of limitation.
The first says claims against a sponsor must be made no more than six years after the time of alleged fiduciary breach.
The second offers potential wiggle room to the first, or at least that's how the plaintiffs in the Tibble case are hoping the Supreme Court sees things.
That provision says sponsors have an ongoing duty to monitor the prudence of investment options in plans. A failure to remove imprudent investments begins a new six-year statute of limitation period, after which a claim can be brought.
Tuesday's arguments will hinge on that provision, said Wagner.
Participants in California-based Edison International's 401(k) plan – the company is an electric utility – alleged retail-class shares of six mutual funds in the fund's investment line-up constituted a fiduciary breach because lower-priced institutional shares of the same funds existed.
A district court agreed with respect to three of the funds added in 2002. But the claims against the other three were thrown out, because they were added to the investment line-up in 1999, outside the six-year window for filing a claim, which the plaintiffs had not done until 2007.
The plaintiffs appealed to the 9th Circuit, arguing the three funds added in 1999 were "timely" under ERISA, because the plan's fiduciaries failed to adequately monitor the plan, leaving the imprudent retail-class shares as an option for several years after they were first offered.
The six-year window for a claim should not begin in 1999, when the three funds were introduced, argued the plaintiffs, but rather should start at the last point Edison failed to adequately monitor the plan, which would put the decision to not remove the more expensive shares well within ERISA's six-year window.
But the 9th Circuit upheld the lower court ruling, ultimately leading to a decision by the Supreme Court to review the case.
"The appellate court dropped the ball on this one," said Greg Porter, a partner at Bailey Glasser who has represented plaintiffs in a number of ERISA excessive-fee cases.
He said his law firm has been watching the case closely all along, and thinks that the Supreme Court agreeing to hear the case suggests that the justices saw something wrong with the 9th Circuit's ruling.
"The Supreme Court didn't take the case to affirm the 9th Circuit. I think it's a pretty good indication," he said.
Porter, however, doesn't agree that a victory for Tibble would unleash a deluge of cases against sponsors.
