By Jess Bravin and Liz Moyer
The Supreme Court on Monday put companies managing 401(k)
retirement plans on notice they have a continuing duty to be
judicious on plan investment decisions, adding protections for the
worker savings plans.
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 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.
The case came to the court on the issue of calculating how long
investors had to bring their lawsuit. The court's opinion, written
by Justice Stephen Breyer, 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, setting standards that legal
experts said could reverberate in the retirement-savings
industry.
"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 class-action 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 high court rejected a ruling by the Ninth U.S. Circuit Court
of Appeals in San Francisco. The appeals court had thrown out the
suit after finding it was filed after a six-year time limit
expired. The case goes back to a lower court, which will review how
often the administrator must re-examine the investments and how to
calculate the deadline.
"We fear the court has invited litigation into an arena that is
already rife with regulatory burden and litigation exposure," Linda
Kelly, a senior vice president and general counsel at the National
Association of Manufacturers, said in a written statement. The
group filed a court brief supporting Edison.
Lauren Bartlett, a spokeswoman for Edison International and
Southern California Edison, in a written statement said the ruling
"does not find any violation by the companies or plan fiduciaries.
The opinion also does not question our loyalty to plan
participants."
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, in which Bethesda,
Md., defense firm Lockheed Martin Corp. agreed 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 win.
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.
Write to Jess Bravin at jess.bravin@wsj.com and Liz Moyer at
liz.moyer@wsj.comb
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