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U.S. Supreme Court Rules on Duty to Monitor 401(k) Plans

The U.S. Supreme Court made its decision on a key 401(k) lawsuit, Tibble v. Edison. This suit was initially filed in 2007 by employees against their employers for having mutual funds with excessive fees in the 401(k) plan.

Their retirement plan had a selection of 40 funds, six of which were retail share class funds and are more costly than institutional share class funds. The U.S. District Court granted the plaintiffs a judgment of $370,732 from the high fees in three of the retail share funds. The other three funds appealed to the ninth U.S. Circuit Court of appeals and eventually to the Supreme Court.

The primary issue before the court was whether the six year statute of limitations for breach of fiduciary duty protects plan fiduciaries from keeping imprudent investments in the plans if those funds were added to the 401(k) plan more than six years ago.

The Supreme Court analysis was based upon the common law of trusts, “which provides that a trustee has a continuing duty (not just when investments are selected) to monitor and remove imprudent investments from the 401(k) plan. The higher court then sent the case back to the ninth circuit to consider the plaintiffs’ claim that Edison breached its duties, within the six year statute of limitations period.

My advice to plan sponsors is don’t just review the performance of the funds, but consider their fee policies and whether they are prudent and in accordance with the plan document every year. Likewise, financial advisors for 401(k) plans have an ongoing date to monitor how the plan pays for services on funds offered to employees.

Have you suffered losses in your 401(k) plan due to your investment advisor’s poor advice? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against investment advisors for their negligence.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 35 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities, and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please post a comment, call (800) 732-2889, send Mr. Pearce an email at pearce@rwpearce.com, and/or visit our website at www.secatty.com for answers to any of your questions about this blog post and/or any related matter.