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DOL Offers Some ‘Friendly’ Advice to Supremes on 401(k) Fee Case

The Department of Labor has offered some “friendly” advice to the U.S. Supreme Court as it considers a review of a high-profile 401(k) fee case. In a “friend of the Court” amicus brief filing, the DOL said it thinks that the high court should weigh in on the statute of limitations issue presented in Tibble v. Edison — but not on the issue of reviewing an alleged breach of duty in administering the plan in accordance with its terms.

‘Starting’ Over

In 2013, the U.S. Court of Appeals for the 9th Circuit agreed that Edison 401(k) plan fiduciaries breached their duties by including retail shares of three mutual funds without first investigating the possibility of including lower-cost institutional-share class alternatives. However, the plaintiffs lost on their statute-of-limitations “continuing violation theory,” concluding that ERISA’s 6-year statute of limitations began to run when the original decision to include the investment in the plan was made.

The latter issue is what the DOL seeks a Supreme Court review, noting that not only do ERISA fiduciaries have an ongoing duty of prudence, but that the practical effect of the 9th Circuit’s ruling is that, “a participant who invested in the plan more than six years after the initial investment could never sue, even if the investment was an obviously imprudent one.” Moreover, the amicus filing notes that under the 9th Circuit’s determination, “fiduciaries would have no incentive to monitor and update plan investments, and they could retain imprudent investment option forever (absent changed circumstances) one the investment options have been available for more than six years.”

A ‘Poor Vehicle’

Regarding the second issue, the DOL noted that an ERISA fiduciary is required to discharge his or her duties in accordance with the plan document “so long as they are consistent with ERISA.” In the Tibble case, the participants had charged that the plan fiduciaries violated the terms of the plan because it said that “the cost of the administration will be paid by the company,” but that under a revenue-sharing arrangement with the provider, plan participants actually paid some of the costs.

The DOL noted that the 9th Circuit determined that an “abuse of discretion” review applies to this kind of claim, because it is a question of plan interpretation, and the plan granted the benefits committee discretion to interpret the plan — a conclusion with which the DOL agrees, according to the filing. But even if the justices might be inclined toward a different conclusion, in its filing, the DOL cautioned that “this case would be a poor vehicle” for deciding the standard of review question, not only because the question was barely briefed, but because it said “there is a substantial question whether petitioners would prevail even under the lower threshold of a de novo review.

 

 

Source: Napa Net

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