Important Supreme Court Decision for 401(k) sponsors

Yesterday, the Supreme Court ruled on Tibble v. Edison International, and the result is something that all plan sponsors should take note of.

Several employees of Edison sued the public utility holding company because they believed that, as plan sponsor, the company had not acted in their best interests by selecting several mutual funds that were open to the public instead of institutional funds, which were identical except for charging lower fees. The Yahoo article linked below notes that a 1% increase in annual fees would reduce an average worker’s retirement savings by around $70,000 over a 40-year career.

The Court ruled unanimously in favor of the workers. Justice Stephen Breyer wrote in the opinion, “The continuing duty to review investments includes a duty to remove imprudent investments”

It’s important to note that this is a much higher fiduciary standard than plan sponsors have historically been held to. In short, plan sponsors need to actively monitor the investments in their plan to ensure they are the best options for the participants.

Link to articles: Yahoo!, WSJ

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