3 Steps to Take to Ensure 401(k) Compliance

Update: The decade-long court case on whether Edison International’s financial advisors and investment committee breached their fiduciary duties to retirement plan participants came to an end Wednesday when the U.S. District Court for the Central District of California ruled that the firm breached its fiduciary obligations by not switching participants to lower-fee institutional mutual fund shares.

In the matter of Tibble v. Edison International, the court ruled that the defendant breached its fiduciary obligations of prudence and monitoring in the selection of all 17 mutual funds at issue, with damages to be calculated “from 2011 to the present, based not on the statutory rate, but by the 401(k) plan’s overall returns” during this period.

Read the original article
from 01/28/2015

The government has been increasingly scrutinizing the pricing structures of retirement plans over the last 10 years or so, but the current case that will hit the Supreme Court in 2015 might have the most disruptive impact. 
Meet the case, Tibble V. Edison.  The lawsuit focuses on six mutual funds added to the Edison International 401(k) plan back in 1999.  Edison workers contest that (and throughout multiple appeals over the years) the retirement plan improperly bought "retail class" shares, rather than identical institutional class shares that carried lower fees, breaching its fiduciary duties. According to the participants, a portion of the fees on the retail shares were then returned to Edison’s retirement plan service provider, reducing the company’s administrative costs by $8 million or so.
The Supreme Court will hear the arguments early this year and provide a ruling by the end of June.

So what does this mean to your 401(k) plan?Many retirement plan experts believe the Tibble V. Edison case will have an extensive impact on 401(k) plans of all sizes.  As an employer, how can you protect your 401(k) plan from similar backlash?

Beth Krasnow, Chief Financial Officer/Attorney for Pension Advisors, a Cleveland-based retirement plan advisory group, discusses in her recent blog, "What Tibble V. Edison Means for Your 401(k) Plan", three initial actions employers can do to reassure its 401(k) plan does not have similar fate:

• Determine who the fiduciaries of the plan are.  Is your advisor a co-fiduciary with the same vested interest as you?
• Understand what the Investment Policy Statement expresses about fees and funds.
• Determine whether the investments chosen for your plan are in the "best interest of the participants.

Beth states in her blog that "Edison was found liable not because the investments it selected did not perform well, but because it selected pricier investments for its own bottom line and not for the exclusive benefit of participants".

Stay tuned on how the Supreme Court will view this case, but in the meantime, there is no time better than now to take action to ensure compliance for your 401(k) plan.