Magazine article HRMagazine

Reliance on Expert Did Not Satisfy Duty of Prudence

Magazine article HRMagazine

Reliance on Expert Did Not Satisfy Duty of Prudence

Article excerpt

Tibble v. Edison International, 9th Cir., No. 10-56406 (March 21, 2013).

The 9th U.S. Circuit Court of Appeals affirmed that a plan administrator violated the Employee Retirement Income Security Act (ERISA) when, on the advice of a consultant, it included retail-class shares of mutual funds in the plan menu without investigating institutional-share class alternatives.

Edison International, a holding company for utilities and energy interests including the Chicago-based Midwest Generation, sponsored a 401(k) plan for its workforce. Employees were provided a menu of options that contained 40 mutual-fund-type investments. The funds were similar to those offered to the public, so-called retail-class mutual funds with higher administrative fees than alternatives available to institutional investors.

Current and former Midwest Generation employees claimed that Edison acted "imprudently" by offering three specific mutual funds in the plan menu without investigating institutional-share class alternatives. During the relevant period, all three funds offered institutional options that Edison's plan could have made available. These institutional options were 24 to 40 basis points cheaper than retailclass options the plan included, and there were no salient differences in the investment quality or management between the class profiles. …

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