Risk & Compliance

High Court Sides With Workers in ERISA Case

The Supreme Court makes it easier for pension plan participants to sue sponsors over imprudent investments.
Matthew HellerMay 19, 2015

The U.S. Supreme Court on Monday handed pension plan participants a victory by making it easier for them to sue plan sponsors for imprudently managing investments.

Lower courts had ruled that claims of Edison International employees who sued their 401(k) plan administrator for breach of fiduciary duty 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.”

But in a case BenefitsPro said had “the potential to open the floodgates to new claims against plan sponsors,” the high court agreed with the plaintiffs that a sponsor has a “continuing duty” under trust law to monitor investments and remove imprudent ones.

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“In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely,” Justice Stephen Breyer wrote in a unanimous opinion.

The ruling “will be of tremendous importance in protecting the interests of retirees going forward,” Jerome Schlichter, a St. Louis attorney who led the case on behalf of the Edison employees, told The Wall Street Journal.

California-based Edison added six mutual funds to its 401(k) 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.

In March 2013, the 9th U.S. Circuit Court of Appeals upheld a trial judge who dismissed most of the beneficiaries’ claims, ruling that their argument would “make hash out of ERISA’s limitation period and lead to an unworkable result.”

The plaintiffs’ appeal to the Supreme Court was backed by the U.S. Solicitor General, who said 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.”

In reviving the case, the Supreme Court expressed no view on the scope of Edison’s fiduciary duty, remanding the case back to the trial court to determine whether the utility “breached their duties within the relevant 6-year period.”