By Jess Bravin and Liz Moyer
Overseers of 401(k) retirement plans have an ongoing duty to
ensure investments are prudent, the Supreme Court said Monday in a
ruling that adds protections for the worker savings programs.
The case involves investors in Edison International's 401(k)
offerings, who claimed the Rosemead, Calif., energy holding company
violated its fiduciary duties by buying retail mutual funds when
nearly identical products were available through less expensive
institutional-class funds.
Justice Stephen Breyer, writing for a unanimous court, said plan
administrators must continue "to monitor trust investments and
remove imprudent ones. This continuing duty exists separate and
apart from the trustee's duty to exercise prudence in selecting
investments at the outset."
The case came to the court on the issue of calculating how long
investors had to bring their lawsuit. The court's holding expands
the time limit for investors to sue by saying a six-year deadline
isn't automatically set the moment the investments are purchased.
It also addressed administrator responsibilities. The Supreme Court
left it to a lower court to review how often the administrator must
re-examine the investments and how to calculate the deadline.
"This will be of tremendous importance in protecting the
interests of retirees going forward," said Jerome Schlichter, the
St. Louis attorney at Schlichter Bogard & Denton LLP who led
the case on behalf of Edison employees.
John Donovan, a partner in Boston for Ropes & Gray LLP who
wasn't involved in the case, said the opinion is a clear signal
that company plans "can't go on autopilot."
The ruling overturned a holding by the Ninth U.S. Circuit Court
of Appeals, in San Francisco, which had thrown out the suit after
finding it was filed after a six-year time limit expired.
Edison didn't immediately respond to a request for comment.
More than a dozen companies, including Boeing Co. and
Massachusetts Mutual Life Insurance Co., have faced similar
claims.
In 13 lawsuits over the years, Mr. Schlichter has pushed large
U.S. corporate 401(k) plans to reduce expenses and improve fee
disclosures. He has settled eight of those suits, including the
largest settlement announced earlier this year: Bethesda, Md.,
defense firm Lockheed Martin Corp. agreeing to pay $62 million.
While Monday's ruling established principles that plan
administrators must follow as fiduciaries--to act with "care,
skill, prudence and diligence"--the eight-page opinion left lower
courts to sort out what they might mean in application.
Still, consumer advocates cheered.
"It gives an added ability to consumers to sue. When plan
fiduciaries know that's a possibility they'll do what they should
have been doing all along," said Mary Ellen Signorille, a senior
attorney with the AARP Foundation, which filed a friend of the
court brief supporting the investors.
Separately, the court agreed to consider whether companies can
quash potential class-action litigation by offering the lead
plaintiffs the full damages they could obtain if they won.
A California man, Jose Gomez, sued marketing agency Campbell
Ewald alleging the Interpublic Group unit sent him unwanted text
messages in violation of the Telephone Consumer Protection Act.
The lawsuit sought class-action status on behalf others who
received the texts, but Campbell Ewald offered Mr. Gomez the
maximum the law allowed for each violation, $1,503, and then sought
to dismiss the case when he declined. The Ninth Circuit held that
the marketer's offer didn't terminate Mr. Gomez's lawsuit.
Campbell Ewald holds a Navy recruiting contract, and the text
read, "Destined for something big? Do it in the Navy. Get a career.
An education. And a chance to serve a greater cause."
The recruiting campaign targeted people aged 18 to 24, but Mr.
Gomez said he was 40 when he received the text.
The case will be heard in the Supreme Court's next term, which
begins Oct. 5.
Write to Jess Bravin at jess.bravin@wsj.com and Liz Moyer at
liz.moyer@wsj.comb
Access Investor Kit for Edison International
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2810201077
Subscribe to WSJ: http://online.wsj.com?mod=djnwires