The U.S. Supreme Court has agreed to consider a case that could make it easier for pension plan participants to sue their plans for imprudently managing investments.
Lower courts have held that Edison International employees could not sue their 401(k) plan administrator for breach of fiduciary duty because their claims were time-barred under the Employee Retirement Income Security Act, which gives workers six years to sue after “the date of the last action which constituted a part of the breach or violation.”
Edison added six mutual funds to its plan in 1999, but the workers did not file their class action until August 2007, alleging the plan improperly bought retail-class shares, rather than identical institutional-class shares that carried lower fees.
The plan has 20,000 participants and about $3.8 billion in assets.
In an order Thursday, the Supreme Court said it would decide whether “a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by [the statute of limitations] when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.”
The Edison beneficiaries contend that a fiduciary has a continuing duty” to make prudent investments in a plan no matter when the investments were first selected.
“For so long as a fiduciary continues to breach its duty by providing imprudent plan investments, the fiduciary remains liable for the plan’s damages resulting from that breach within the six years preceding the filing of a fiduciary breach action,” they said in their petition for Supreme Court review.
In March 2013, the 9th U.S. Circuit Court of Appeals ruled that the beneficiaries’ argument would “make hash out of ERISA’s limitation period and lead to an unworkable result.” The ruling upheld a trial judge who dismissed most of the beneficiaries’ claims.
But the U.S. Solicitor General has come out in support of the Edison workers, telling the Supreme Court in an amicus brief that ERISA “imposes a continuing duty of prudence on plan fiduciaries, and [the Edison plan] breached that duty throughout the limitations period by continuing to offer higher-cost investment options when identical lower-cost options were available.”