News in August that a full appellate-judge panel would review the Tibble v. Edison International case, in which plaintiffs alleged that their plan inappropriately used retail share classes, does not impact the upshot of last year’s U.S. Supreme Court decision in the case.
“An important takeaway from Tibble is that the Supreme Court made clear there is an ongoing duty to monitor an initial investment decision,” says Lars Golumbic, a principal at Groom Law Group, Chartered, in Washington, D.C. “Tibble is a direct instruction from the Supreme Court, and a cautionary note that you need to do this on a regular basis. Plan sponsors need to document that they have regularly reviewed investments and document objective, empirical reasons for why each investment has been retained in the plan, or why they made the decision to remove an investment.”
To help avoid future legal trouble, plan sponsors should think defensively. They should have a prudent process and carefully document their reasons for making decisions, including those on the fee-related issues these cases raise, Golumbic says.
“The share-class issue has been a real point of focus in fee lawsuits,” he says. “But the plaintiff’s bar has not limited itself to that issue. In some cases, the plaintiffs have said that a collective trust [CT] might be available at a lower cost, given the plan size. And the active vs. passive management issue is a prevalent theory in many fee lawsuits.” Sponsors utilizing investments that pay revenue sharing also need to thoroughly document that any revenue sharing retained represents reasonable compensation for the services provided and is in the best interests of participants, he says.