The Takeaway from Conclusion of Long-running California ERISA Lawsuit
Los Angeles, CA: A California ERISA lawsuit that began life in the Golden State only to wind up in the highest court in the land was finally resolved this past August with a decision favoring the plaintiffs.
There is also a lingering message for retirement plan fiduciaries.
The lawsuit is Glen Tibble, et al v. Edison International, et al., Case No. 2:07-cv-05359-SVW-AGR, originally filed in the US District Court for the Central District of California. According to documents associated with the lawsuit the class action dates back to August 16, 2007 and took various twists and turns before finally achieving resolution.
Writing in Forbes (12/12/17), contributor Brian Menickella noted that the lawsuit grew from allegations made by former employees of Midwest Generation LLC – a subsidiary of Southern California Edison Company (SCE). The plaintiffs claimed that the basket of named defendants in the class action mishandled management of the employee 401(k) retirement plan, resulting in losses amounting to more than $7 million.
Under statutes observed by the Employee Retirement Income Security Act (ERISA, as amended 1974), those tasked with managing an employee 401(k) plan are mandated to make all investment decisions with the best interests of Plan members first and foremost. Plaintiffs in the ERISA lawsuit alleged the Plan managers failed to do this, resulting in losses to the Plan.
Specifically, Plan administrators were accused of purchasing retail shares of product in March of 1999 rather than institutional shares – the latter incurring lower fees than retail shares. Tibble et al also accused Edison et al of utilizing the monies from the retail shares to offset Plan management costs, which plaintiffs deemed was not in the best interests of Plan members – and thus a violation of ERISA.
While the district court duly ruled that three of the funds invested post-2001 should, indeed have been purchased as institutional shares rather than retail shares, at the same time some of the plaintiff’s claims were not allowed as they were time-barred by the statute of limitations as outlined in ERISA Section 1113.
Plaintiffs appealed the time-bar ruling to the Ninth Circuit. The case eventually was heard by the Supreme Court of the United States, which subsequently found that the district court got it wrong by failing to consider the nature of the fiduciary duty required to have been followed by the defendants. The case was sent back to the district court, and the entire matter was finally resolved this past August.
According to PLANSPONSOR (08/17/17), a respected newsletter serving the investment industry, the takeaway message for those tasked with fiduciary duties of 401(k) retirement plans can no longer operate against the cushion of time-barring for previous investment decisions that may have gone off the ERISA rails.
The California district court is described as taking the rulings from both the Ninth Circuit and the US Supreme Court to arrive at the determination that Plan fiduciaries had actually breached their obligations towards fiduciary prudence in the selection of all 17 funds at issue in the ERISA lawsuit.
Damages are to be calculated from 2011 to present day, “based not on the statutory rate, but by the 401(k) plan’s overall returns in this time period,” the Court said.
Defendants in the ERISA lawsuit were Edison International, Southern California Edison Company, the Southern California Edison Company Benefits Committee, the Edison International Trust Investment Committee, the Secretary of the SCE Benefits Committee, SCE’s Vice President of Human Resources, and the Manager of SCE’s Human Resources Service Center.
There is also a lingering message for retirement plan fiduciaries.
The lawsuit is Glen Tibble, et al v. Edison International, et al., Case No. 2:07-cv-05359-SVW-AGR, originally filed in the US District Court for the Central District of California. According to documents associated with the lawsuit the class action dates back to August 16, 2007 and took various twists and turns before finally achieving resolution.
Writing in Forbes (12/12/17), contributor Brian Menickella noted that the lawsuit grew from allegations made by former employees of Midwest Generation LLC – a subsidiary of Southern California Edison Company (SCE). The plaintiffs claimed that the basket of named defendants in the class action mishandled management of the employee 401(k) retirement plan, resulting in losses amounting to more than $7 million.
Under statutes observed by the Employee Retirement Income Security Act (ERISA, as amended 1974), those tasked with managing an employee 401(k) plan are mandated to make all investment decisions with the best interests of Plan members first and foremost. Plaintiffs in the ERISA lawsuit alleged the Plan managers failed to do this, resulting in losses to the Plan.
Plaintiffs alleged Plan fiduciaries purchased the wrong type of shares
Specifically, Plan administrators were accused of purchasing retail shares of product in March of 1999 rather than institutional shares – the latter incurring lower fees than retail shares. Tibble et al also accused Edison et al of utilizing the monies from the retail shares to offset Plan management costs, which plaintiffs deemed was not in the best interests of Plan members – and thus a violation of ERISA.
While the district court duly ruled that three of the funds invested post-2001 should, indeed have been purchased as institutional shares rather than retail shares, at the same time some of the plaintiff’s claims were not allowed as they were time-barred by the statute of limitations as outlined in ERISA Section 1113.
Plaintiffs appealed the time-bar ruling to the Ninth Circuit. The case eventually was heard by the Supreme Court of the United States, which subsequently found that the district court got it wrong by failing to consider the nature of the fiduciary duty required to have been followed by the defendants. The case was sent back to the district court, and the entire matter was finally resolved this past August.
Fiduciaries can no longer lean on time-barring as insurance against past errors
According to PLANSPONSOR (08/17/17), a respected newsletter serving the investment industry, the takeaway message for those tasked with fiduciary duties of 401(k) retirement plans can no longer operate against the cushion of time-barring for previous investment decisions that may have gone off the ERISA rails.
The California district court is described as taking the rulings from both the Ninth Circuit and the US Supreme Court to arrive at the determination that Plan fiduciaries had actually breached their obligations towards fiduciary prudence in the selection of all 17 funds at issue in the ERISA lawsuit.
Damages are to be calculated from 2011 to present day, “based not on the statutory rate, but by the 401(k) plan’s overall returns in this time period,” the Court said.
Defendants in the ERISA lawsuit were Edison International, Southern California Edison Company, the Southern California Edison Company Benefits Committee, the Edison International Trust Investment Committee, the Secretary of the SCE Benefits Committee, SCE’s Vice President of Human Resources, and the Manager of SCE’s Human Resources Service Center.
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