Employer violated duty in investment options: Court

by Judy Greenwald, BusinessInsurance.com

LOS ANGELES Energy company Edison International violated itsĀ  duty of prudence under the Employee Retirement Income Security Act by offering three retail mutual funds as investment options in its 401(k) plan rather than their less costly institutional option equivalents, a Los Angeles federal judge has ruled.

The three funds at issue: the William Blair Small Cap Growth Fund, the MFS Total Return Fund and the PIMCO (Allianz) RCM Global Tech Fund, were not defendants in the class action Glenn Tibble et al. vs. Edison International et al.

"Defendants have not offered any credible explanation for why the retail share classes were selected instead of the institutional share classes," Judge Stephen Wilson said in the ruling. "In light of the fact that the institutional share classes offered the exact same investment at a lower fee, a prudent fiduciary acting in a like capacity would have invested in the institutional share classes."

Edison's action "caused the plan participants substantial damages" with respect to the Edison 401(k) plan, which has more than $1 billion in assets, the judge ruled. The judge also set guidelines for the plaintiffs to submit a determination of damages.

"To the extent any of the three funds at issue continue to be invested in retail share classes and cheaper but otherwise identical investments are available in the institutional share class of those same funds, defendants will take steps to remedy the situation" to "eliminate future damage to the plan participants," the judge ruled.

However, Judge Wilson, in the ruling dated July 8 but released Monday, said Rosemead, Calif.-based Edison did not breach its fiduciary duties of loyalty or prudence with respect to three other mutual funds. It also did not breach its fiduciary duty of prudence in its investment in a money market fund, or by failing to negotiate a lower management fee.

The lawsuit was filed in 2007 and granted class action status in June 2009. In July 2009, the court granted The lawsuit was filed in 2007 and granted class action status in June 2009. In July 2009, the court granted granted summary judgment dismissing most of the plaintiffs' initial charges in the case.

"We have consistently stated that the law requires large 401(k) plan fiduciaries to use their enormous bargaining power to obtain fees that are dramatically lower than those paid by retail investors," the plaintiffs' attorney, Jerome Schlichter of St. Louis-based Schlichter Bogard & Denton LLP, said in a statement. "The district court agreed with our position on this and Edison employees and retirees will benefit from lower fees going forward as they should."

A spokeswoman for Southern California Edison Co., an Edison International company, said the firm does not comment on litigation.