A seminal case in the trend towards lower fees took a major step towards resolution with an announcement Thursday from the U.S. District Court for the Central District of California in the matter of Tibble v. Edison International.
The court found that the defendant, public utility company Edison International, breached its “fiduciary obligations of prudence and monitoring” in the selection of all 17 mutual funds at issue.
Interestingly, damages must be calculated from 2011 to the present based not on the statutory rate but by the 401k plan’s overall returns in this time period.
“After ten years of litigation, and a unanimous favorable ruling by the U.S. Supreme Court, we are pleased that the court agreed with our position,” Jerry Schlichter of Schlichter, Bogard & Denton, the attorney for the plaintiffs, said in a statement. “We look forward to continuing our work on behalf of the employees and retirees involved in this case, so that they may soon see a resolution and find relief.”
The ruling, which was delivered on the 10-year anniversary of the initial filing of the suit, deals with 14 mutual funds that the plaintiffs contend should have been switched by the defendants from retail to institutional shares on August 16, 2001, the beginning of the statutory period.
The additional 3 mutual funds in dispute had their institutional-class shares become available later, during the statutory period, and had no statute of limitations questions.
Edison had previously unsuccessfully argued in the Supreme Court that there was no continuing duty to monitor these 401k plan funds.
In yesterday’s ruling, the court said that, beginning on August 16, 2001, the defendant did breach its ongoing duty to monitor the funds in the plan, and held that the defendant violated its duty of prudence to the employees and retirees by investing in retail rather than institutional funds.
The court also agreed with plaintiff’s position that damages must be calculated based on the loss in excessive fees paid and for the lost investment opportunity that stemmed from this breach.
The case made its way to the Supreme Court, and in 2015 ruled in favor of 401k plan participants (Edison employees) in the only 401k excessive-fee case taken by the Supreme Court.
After that ruling, the United States Court of Appeals for the Ninth Circuit ruled unanimously, in a 10-judge decision, in favor of plaintiffs that the District Court should award damages to the plaintiffs.
With yesterday’s ruling, the employees and retirees move one step closer to a final judgment and damages awarded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
