Fiduciaries Held Liable for Selecting Retail Mutual Funds

McGuireWoods LLP has released an update about a recent case that addresses 401(k) plan fees and expenses.  Tibble, et al., v. Edison Int'l., et al., U.S.D.C (C.D.Ca.) Case No. CV 07-5359 SVW (AGRx) focused on responsibilities of the Edison International fiduciaries in their selection of mutual fund investment options for the participant-directed 401(k) plan, which contains over $1 billion in assets; the class of participants in that savings plan were the plaintiffs for this case. The court ruled that the Edison plan's fiduciaries violated their ERISA duty of prudence when the fiduciaries chose to invest in retail shares of mutual funds rather than the institutional shares of the same funds. McGuireWoods writes that the "lessons" from the case suggest that:

• Large employers and retirement plans should use their bargaining power to negotiate lower fees for participants.
• Relying on recommendations of independent investment advisors without further investigation may not meet the fiduciary standard of prudence. Fiduciaries must make certain that their reliance on advisors' advice is reasonably justified.
• Fiduciaries should carefully document their evaluation and negotiation of fees and overall investigation concerning the selection of 401(k) plan investment options.

The original update provides a more thorough analysis of the case and the complete list of lessons to be taken away from it. 


Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal