As the notable 401(k) excessive fees lawsuit threads its path to US Supreme Court, experts in the industry are of the opinion that the decision could trigger a domino effect. It could range from process of selecting plan funds to the ability of fiduciaries to obtain the liability insurance.

Original case

In the spotlight is the Glen Tibble versus Edison International (NYSE: EIX) case, a suit first filed in US District Court in August 2007 in Central District of California. The initial suit concentrates on the six mutual funds in the plan menu of Edison that were offered in-lieu of more economical institutional share classes.

Although the plaintiffs subsequently received a district court judgment in 2010, the damage amount granted was only $370,732 related to the excessive fees in the three mutual funds. The story continued as both the parties fought over fees, shifting the suit to 9th Circuit Court of Appeals. In first week of October, the Supreme Court consented to review this case.

At present, the defendants are engaged in arguing about statute of limitations, which require that plaintiffs must launch a suit alleging a fiduciary breach within six years of last action that constituted the breach.

Six years’ limitation

Donald B. Verilli, the US Solicitor General, in August, smoothed the path for the case to be reviewed by Supreme Court. It was made possible when a brief was filed by him mentioning that the extent of the fiduciary duty as per ERISA is not restricted to six years. According to a written statement by Mr. Verilli, the plan fiduciaries have an ongoing fiduciary duty where the plan investments will be reviewed and the imprudent ones will be eliminated.

Although a few ERISA attorneys interpreted the focus on six-year long statute of limitations simply as a tactic for litigation, experts of the retirement industry noted that the decision of the court on the issue could determine how the fiduciaries serve participants and retirement plans. According to Jason C. Roberts, the Chief Executive Officer of Pension Resource Institute, the open ended liability theory can continue. On one hand, it is possible to be protective of participants. On the flip side, it could restrict the degree of written liability insurance.

In consequence, the brokers and the dealers who possess the infrastructure of supervising the select group consisting of 401(k) advisers will put into place a very rigorous process through which the retirement business will be planned.