Supreme Court: Time Doesn't Heal All Wounds

by Mark Hebner and IFA Contributors - Monday, 13 October, 2014

We are quite pleased to learn about two recent court rulings on a topic that is very important to us, fiduciary protection in retirement plans. Both rulings rejected arguments that the plan sponsor defendants were protected from compensating plan participants for imprudent fund choices by the statute of limitations.

In the first ruling, the U.S. Supreme Court agreed to hear an appeal by Edison International workers arguing that they should be able to sue for damages resulting from high-cost fund choices in their company’s 401(k) plan. Edison had won a previous ruling stating that since the funds were added more than six years prior to the lawsuit, Edison would be exempt from damages due to a statute of limitations derived from the Employee Retirement Income Security Act (ERISA). The Supreme Court’s decision may have been influenced by an amicus brief filed by the Obama administration which stated that the lower court’s ruling “undermines the security and integrity” of U.S. retirement funds. Plaintiff’s attorney Jerome Schlichter argued that federal law imposes “a continuing duty to provide only prudent investments in a plan regardless of when the investments were first selected.” According to this article on CBS MoneyWatch, Mr. Schlichter has managed to win more than $150 million in settlements on behalf of 401(k) participants in other big plans, including those offered by Bechtel, Kraft, General Dynamics, Caterpillar, and International Paper.

In the second ruling, U.S. District Judge Sidney Stein denied Citigroup’s motion to dismiss a lawsuit filed against it for “self-dealing” by using its own funds in place of lower-cost alternatives in its 401(k) plans. Citigroup attempted to invoke a three-year statute of limitations based on ERISA, but Judge Stein ruled that Citigroup failed to prove that the plaintiffs had actual knowledge of the breach of fiduciary duty more than three years prior to the filing of their lawsuit. As plaintiff attorney Greg Porter said, “Citigroup employees could have earned millions more for their retirement if Citigroup had followed the law.”

According to the Investment Company Institute, Americans held about $6.6 trillion in 401(k)-type plans as of June 30th, 2014, so the outcomes of these lawsuits could have immense implications for plan sponsors, plan participants, and advisors to retirement plans. We at IFA will continue to watch this situation closely and keep you informed of any important developments. If you would like to learn more about IFA’s approach to 401(k) and other retirement plans, please give us a call at 888-643-3133.