Compliance » SCOTUS: Employers Lax On 401K Fees Can Be Sued

SCOTUS: Employers Lax On 401K Fees Can Be Sued


May 19, 2015

The Supreme Court has ruled that employers have a continuing duty to monitor fees being charged for products in employees’ 401(k) portfolios, and they can be sued if they fail to do it. The unanimous decision overturned lower courts, including the Ninth Circuit Court of Appeals, which had let employer Edison International off the hook in part because a six-year statute of limitations had tolled since some of the allegedly offending funds had been first offered. The Court overruled, saying that a “continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” The case at issue, a class action that had been filed in 2007, claims that Edison had failed in its fiduciary duty under ERISA when it offered mutual funds with higher fees than other similar funds. Experts quoted in a Los Angeles Times article about the decision render a variety of opinions about prospects for future litigation, but one immediate effect is likely to be a move to lower-cost funds, such as index funds.


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