Tibble’s $7.5M Price Tag for a Process of Prudence

Tibble v. Edison International was a ground-breaking case in the retirement planning and benefits industry, being the first and (so far) only excessive fee lawsuit to reach the highest court of the U.S.

The Supreme Court’s decision in 2015 was unanimous in favor of the plaintiffs, the participants in Edison International’s retirement plan. The high court ruled that plan sponsors had a fiduciary duty to continuously monitor plan performance. That duty, in the eyes of the Supreme Court, includes monitoring investment alternatives to identify potential lower-cost funds for the plan’s investment menu.

You can read our message to plan sponsors about the outcome of the Tibble case here.

The decision was a wake-up call for employers and retirement plan sponsors across the U.S. More importantly for plan sponsors, the Supreme Court’s decision and the subsequent award against the defendant, Edison International, underscore the critical nature of what a process of prudence is designed to do—ensure plan sponsors meet all requirements of their fiduciary duty.

Tibble’s Final Chapter

The case returned to a lower district court in California to be litigated after the Supreme Court’s decision stated ERISA’s six-year statute of limitations didn’t shield the defendant from this lawsuit. The lower court ruled in favor of the plaintiffs earlier this month and issued damages in excess of $7.5 million to be paid by the plan sponsor.

How did the court arrive at the $7.5 million award amount? They noted the difference in return plan participants would have earned from the institutional class shares had these funds been available as investment options in their plan. The excess return was calculated from 2011 to the present day.

The Price of Prudence

Is $7.5 million the right price to pay for a process of prudence? The legal headaches and possible punitive awards are avoidable. And having a process of prudence in place can certainly help avoid any legal fallout.

We’ve outlined 8 essential elements that go into a process of prudence to help plan sponsors fulfill their fiduciary duties to participants. We wrote these guidelines to give plan sponsors some concrete steps they can take to ensure they are doing as much as they can to act in the best interests of plan participants.

If you fall short in any of these areas, these guidelines can help you focus your attention on any gaps that could lead to a fiduciary breach. But even if your process of prudence is already buttoned up, these guidelines provide a helpful review to ensure you are staying in compliance with your fiduciary duties.