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Supreme Court rules for employees on ERISA case

This month, the U.S. Supreme Court made a unanimous ruling on a case brought by employees of California-based Edison International that has ramifications for workers and business owners and for the Employee Retirement Income Security Act. Just whether those ramifications will benefit workers in the long run remains to be seen.

In Tibble v. Edison International, former and current employees of the utility alleged that their retirement plan fiduciaries did not give them access to funds with the best fee structures available. They claimed that the retail-class funds available to them were more costly than institutional-class funds that were identical. Even a quarter of a percent difference in fees could end up costing employees thousands of dollars over the course of their working years.

As the result of the high court’s decision, employers and plan fiduciaries must ensure that they are offering the best fee structure available. The case was also important because it was outside of ERISA’s six-year statute of limitations for filing such as case.

The decision will require increased monitoring of plans to ensure that the best fee structures are being offered. Further, lower fees do not always provide the best returns. Companies may find ways to get around the rules by offering similar, but not identical, options. Employees could end up with fewer low-cost options and funds where the true performance and costs are difficult to track.

Most employees who participate in their company’s 401(k) or other retirement savings plan are not investment gurus. They trust those who provide and manage the plans to provide them with the best options from which to choose and adequate information to make informed choices. However, if those employers and plan sponsors do not uphold their responsibilities to those employee-investors, they can and should be held liable.

Source: MarketWatch, “What the Supreme Court’s fixes for retirement savings may do to your 401(k),” Chuck Jaffe, May. 23, 2015

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