Plaintiffs win Tibble v Edison (re: lower fees in 401k's)

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ResearchMed
Posts: 5105
Joined: Fri Dec 26, 2008 11:25 pm

Plaintiffs win Tibble v Edison (re: lower fees in 401k's)

Post by ResearchMed » Fri Aug 18, 2017 6:42 am

http://www.investmentnews.com/article/2 ... stmentnews

See also
http://www.planadviser.com/Another-Tibb ... ict-Court/

Apparently, the Plaintiffs finally won the real, underlying case (not just intermediate challenges).

Among other issues,

"Defendants "concede that they were wrong in not considering institutional shares," he said. "Because the institutional share classes are otherwise identical to the retail share classes, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary.""
[quoted from article in first link above]

I fought this with Employer for a couple of years, and finally gave up.
A year after that, they switched to Institutional shares, probably because Tibble was moving along.

The recent win in SCOTUS was about whether there was an ongoing duty to monitor for this or other fiduciary concerns.
Then SCOTUS sent it back to the US District Court.

There have been other similar cases.
Wonder if some of those will settle now, or if other Employers will quickly follow suit if possible.

RM
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ofckrupke
Posts: 265
Joined: Mon Jan 10, 2011 2:26 pm

Re: Plaintiffs win Tibble v Edison (re: lower fees in 401k's)

Post by ofckrupke » Fri Aug 18, 2017 11:52 am

Wow.
Court's rebuke of defendant's argument that 2-5 months are necessary to study/determine and execute a plan menu change, presumably including the mapping of participants' existing holdings to new menu, is likely to have unintended consequences.
Apparently the duty to act immediately on a fiduciary finding is higher than the duty to provide a transition that is either orderly or convenient to participants' forward vision.

Also management's failure to document, through the Plan docs and Collective Bargaining Agreement, the mechanism by which revenue sharing from the retail share funds served to eliminate participant account fees for administration and recordkeeping, turns out to have been a expensive blunder.
Last edited by ofckrupke on Fri Aug 18, 2017 12:58 pm, edited 1 time in total.

ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Re: Plaintiffs win Tibble v Edison (re: lower fees in 401k's)

Post by ERISA Stone » Fri Aug 18, 2017 12:51 pm

In my opinion, this is not a victory for lower fees in a retirement plan. The sponsor didn't lose this case because high-fee, actively managed funds were provided. They lost because the exact same funds they offered were available at a lower cost. Honestly, I don't know how this happens with a plan the size of Edison.

dkturner
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Re: Plaintiffs win Tibble v Edison (re: lower fees in 401k's)

Post by dkturner » Sun Aug 20, 2017 12:55 pm

ERISA Stone wrote:
Fri Aug 18, 2017 12:51 pm
In my opinion, this is not a victory for lower fees in a retirement plan. The sponsor didn't lose this case because high-fee, actively managed funds were provided. They lost because the exact same funds they offered were available at a lower cost. Honestly, I don't know how this happens with a plan the size of Edison.
The opinion discusses the issue of "cost sharing", namely the practice of using high expense funds, which rebate a substantial portion of their expense ratio to the plan administrator, thus eliminating (or greatly reducing) the plan administrative expenses.This allows the employer to tell employees that the employer is bearing the administrative expenses.

If employers are required to use the lowest cost classes of mutual funds they likely will amend their plans to provide that the administrative expenses are to be borne by the plan participants. Edison made this argument in the most recent District Court proceeding, but it was dismissed, because it wasn't raised in the original trial. Any employer who takes the trouble to read the latest opinion in the Edison case is furnished with a blueprint of how to avoid fiduciary liability. If it uses high cost mutual funds all it has to do is create a Power Point presentation that shows the actual math that higher expense ratio funds result in lower investment returns which, in turn, result in lowered administrative expenses for the employees. The second slide shows that low expense ratio funds result in higher investment returns which, in turn, result in increased administrative expenses for the employees, offsetting the benefit of the higher returning mutual fund shares. The smarter mutual fund providers have long structured their investment management fees, and rebate rates, in exactly this way.

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