InvestmentNews Article Emphasizes That Advisers Should Heed Fiduciary Principles Upheld in Schlichter Bogard & Denton’s Tibble 401(k) Suit
A recent InvestmentNews article has highlighted the important fiduciary principles that have been upheld by courts in Tibble v. Edison, Schlichter Bogard & Denton’s long-running case regarding excessive 401(k) fees against Edison International. The article notes that Tibble is “the first [case] regarding excessive 401(k) fees to be heard by the Supreme Court[,]” and resulted in a unanimous decision in favor of the plaintiffs represented by Schlichter Bogard & Denton. The article then focuses on the recent Tibble decision by the Ninth Circuit Court of Appeals that elaborated on substantive areas of law under ERISA: the duty to monitor and the duty of a prudent trustee to be cost-conscious. As to the duty to monitor, the article notes that the Ninth Circuit, in ruling for Schlichter Bogard & Denton, relied on traditional trust law and quoted from the Supreme Court’s decision finding that a trustee must “systematic[ally] conside[r] all the investments of the trust at regular intervals to ensure that they are appropriate.” As to the duty to be cost-conscious, the article points out that the Ninth Circuit quoted from the Restatement (Third) of the Law of Trusts to explain that a “trustee is to incur only costs that are reasonable in the amount appropriate to the investment responsibilities of the trusteeship[,]” and that “cost-conscious management is fundamental to prudence in the investment function,” and should be applied “not only in making investments but in monitoring and reviewing investments.”
Based on these principles, the article takes the position that even low-cost funds can be challenged for breach of fiduciary duty when there are identical lower-cost shares of the same funds available, and cites as an example Bell v. Anthem—another 401(k) excessive fee suit handled by Schlichter Bogard & Denton that recently survived a motion to dismiss. Finally, the article predicts that additional language from the Restatement of Trusts referenced by the Ninth Circuit’s recent Tibble decision will likely be cited in cases finding that the absence of an index fund is a fiduciary breach.