Yesterday, the Ninth Circuit issued an opinion in Tibble v. Edison International (Case: 10-56406, 03/21/2013), affirming the Central District of California district court’s ruling in a 401(k) fee case brought under ERISA. The district court had rejected most claims but had entered judgment totaling just over $300,000 for the plaintiff beneficiaries on claims regarding the selection of certain mutual fund investment options, where lower-priced share classes were available in the same funds. Highlights from the decision include:
Statute of Limitations
- The Ninth Circuit rejected a “continuing violation theory” in favor of a bright-line rule that the act of designating an investment for inclusion starts the running of ERISA’s six-year SOL.
- Beneficiaries did not have “actual knowledge” of the alleged deficiencies in the process for selecting retail class mutual funds for the plan’s investment line-up, and, therefore, ERISA’s three year SOL does not apply.
- The panel also held that Section 404(c) (a “so-called” safe harbor that can relieve a plan fiduciary from liability arising from the investment choices made as a direct and necessary consequence of a participant’s exercise of control) did not preclude a merits consideration of plaintiffs’ claims.
- The panel declined to consider defendants’ arguments that class certification was improper since this issue was raised for the first time on appeal.
Revenue Sharing and Standard of Review of Fiduciary Breach Claims
- The Ninth Circuit panel affirmed the district court’s grant of summary judgment to defendants on the claim that revenue sharing between mutual funds and the administrative service provider violated the plan’s governing document and was a conflict of interest. Looking to the Supreme Court’s prior holdings (Firestone Tire & Rubber Co. v. Bruch, Metropolitan Life Insurance Co. v. Glenn and Conkright v. Frommert) on standard of review and agreeing with the holdings of the Third and Sixth Circuits (and rejecting the rulings of the Second Circuit), the Ninth Circuit panel held that, as in cases challenging denials of benefits, a “usual” abuse of discretion standard of review applied to this case which concerns potential violations of fiduciary duties and conflicts-of-interest because the plan granted interpretive authority to the administrator.
Use of Mutual Funds, Short-Term Investment Fund and Unitized Stock Fund
- The Court also ruled that defendants did not violate their duty of prudence under ERISA by including in the plan’s investment menu (i) mutual funds, (ii) a short-term investment fund “akin” to a money market fund, and (iii) a unitized company stock fund.
Finally, the panel affirmed the lower court’s holding, after a bench trial, that the defendants were imprudent in deciding to include retail-class shares of three specific mutual funds in the plan menu because Edison failed to investigate the possibility of institutional-class alternatives.