The Supreme Court put employers on notice Monday that they can be sued if their retirement plans offer employees mutual funds with unnecessarily high fees.
In a 9-0 decision, the justices revived a lawsuit against Edison International and said the company had a “continuing duty to monitor” the investments that were offered to its employees.
The decision is likely to boost a series of class-action suits pending against companies allegedly offering funds with high fees.
Several employees had sued Edison and alleged that they had been offered “retail-class mutual funds” with high fees in their 401(k) plan, even though lower-priced “institutional” funds were available. They cited the federal retirement law, which says retirement funds should be operated in trust and with “prudence” for the “exclusive” benefit of the employees.
But the U.S. Court of Appeals for the 9th Circuit threw out most of the suit because it came too late, more than six years after the disputed mutual funds were first offered to their employees.
In Monday’s decision, the high court said the company had a duty to monitor the funds it offered and to make sure they remained prudent investments.
“Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones,” said Justice Stephen G. Breyer, speaking for the court in Tibble vs. Edison International. “This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.”
The justices did not finally resolve the issue, but said any statute of limitations did not apply because employers had a continuing obligation to protect workers and the higher-cost funds remained in effect.
They sent the matter back to the federal courts in California to consider whether Edison had “breached” its “fiduciary duty in this case.”