Supreme Court Petitioned to Hear Another ERISA Case

November 12, 2014, 1:30PM. By Heidi Turner

Washington, DCWhile plaintiffs in one ERISA lawsuit have been given the opportunity to present their case to the Supreme Court, plaintiffs in another ERISA plan lawsuit wait to hear if the Supreme Court will hear their case. Both issues bring forward complex issues concerning how ERISA 401(k) plans are run and could have wide-ranging implications for such benefits plans.

The first lawsuit, as reported on by LawyersandSettlements here, involves the statute of limitations concerning ERISA lawsuits. Under the Employee Retirement Income Security Act (ERISA), such suits must be brought within six years of the last violation. In the case of Tibble v. Edison International, the shares in question were purchased in 1999, but a lawsuit alleging plan fiduciaries breached their duty by offering more expensive share classes of funds when less expensive were available, and further alleging excessive fees were charged to the plan, was not filed until 2007.

Lower courts dismissed the lawsuit, agreeing with the defendants that the statute of limitations had expired. Plaintiffs argued that as long as an investment plan holds the investment, the fiduciary is liable for the plan. The plaintiffs in the Tibble lawsuit have the sympathy of US Solicitor General Donald B. Verrilli, Jr. According to attorneys for the plaintiffs, this will be the first case involving excessive 401(k) fees to be heard by the Supreme Court.

Now, plaintiffs in a different lawsuit have petitioned to have their ERISA claim heard. This lawsuit, Tussey v. ABB, references the Tibble lawsuit, and alleges that recordkeeping fees charged to plan participants were excessive. The lawsuit further charges that ABB selected investment options that benefited ABB and Fidelity, the plans’ record keeper, and not investment options that were in the best interests of plan participants.

At issue specifically was the decision to replace the Vanguard Wellington Fund with Fidelity’s Freedom Funds.

According to court documents, after ABB hired Fidelity as record keeper, Fidelity was paid mainly through revenue sharing. Fidelity then also offered other services to ABB, and offered them at a loss because of the profits made from the revenue sharing agreement. “Thus, the high mutual fund expenses and revenue sharing from the Plan subsidized the corporate services that ABB Inc. received from Fidelity,” the lawsuit alleges.

In 2012, the trial court found that ABB breached its fiduciary duties to plan participants and breached its duty of loyalty in removing the Vanguard funds from its plan, resulting in the plan and plan participants overpaying for recordkeeping services.

Part of the claim involving excessive recordkeeping fees was upheld by an appeals court, including the $13.4 million judgment linked to that claim. The $21.8 million linked to the mapping of plan assets from Vanguard to Fidelity funds, however, was reversed, with the court essentially finding that plan fiduciaries would have no way of predicting which of the two funds would do better in the future.

Plaintiffs argue that since the fiduciaries were found to have breached their duty in other circumstances - that of excessive recordkeeping fees - the fiduciaries should not be given the benefit of the doubt when arguing switching the funds.

The cases are Tibble, et al, v. Edison International, et al, case number 13-550, Supreme Court of the United States, and Tussey et al, v. ABB Inc., et al, Supreme Court for the United States.