Tibble vs. Edison International

[Htown Harry]

Caution: wonk alert. I'm a non-lawyer who has a bucket list item to attend oral arguments at the Supreme Court.

Tuesday, the Supremes heard oral arguments in a case of interest here. Plaintiff Tibble sued, claiming a breach of ERISA fiduciary duty by an employer who made investor-class shares available to 401(k) participants when cheaper institutional-class shares were available.

The case is summarized here: Supreme Court Tibble vs Edison case may affect your 401K

Clicking on a link here under the Arguments tab leads to the transcript of the oral arguments. Tibble v. Edison International : SCOTUSblog

Some excerpts are pasted below. Frederick argues for the Plaintiff, Hacker for the defendent.

JUSTICE KAGAN: And if I could just ask
again, Mr. Frederick, what that duty includes in
addition to the changed circumstances situation. In
other words, just on a continuing basis and tell me
in a way that includes this case but isn't limited to
this case on a continuing basis what is a trustee
supposed to do under the prudent person's standard?

MR. FREDERICK: Sure. Three things. One,
look at the performance on a regular basis, a periodic
basis. Number 2, look at the expenses and determine is
there a cheaper way to get the same investment for less
money that's coming out of the beneficiaries' assets.
Number 3, has there been an an alteration in the
management such that one ought to look further and more
deeply into it.

And at the very least, Justice Kagan, one
would think you'd look at the SEC filings for that
mutual fund to determine whether or not there had been
something that would require a a determination of
imprudence. And that's not heavy lifting.

JUSTICE KAGAN: They don't like changes.
They would rather have fees?

MR. HACKER: No, what they care about is
performance, and this is performance

JUSTICE KAGAN: Mr. Hacker

MR. HACKER fee.

JUSTICE KAGAN: the day when you get from
your mutual funds a notice that says, by the way, you're
a preferred investor, we're switching you, it's the
exact same fund under a different name, now you don't
pay fees that's a redletter day for an investor.

MR. HACKER: But that's not how it works in
this situation. Again, there was a trial on this. The
plaintiff's tried to make this argument. Their expert
could have made exactly this argument, and what he said,
he wouldn't endorse the proposition that this was the
kind of thing you would catch in periodic review,
because it's not what you're looking for. You don't look for less expensive options.

And I haven't heard an
argument from the other side that says as a general
matter with respect to the breach of with respect to
the duty to monitor, your duty is limited only to
whether or not there's a cheaper share class and you
don't actually have a duty to look for other cheaper
options.

CHIEF JUSTICE ROBERTS: How was there
investor confusion? It seems to me one sentence saying,
well, we have been paying .3 percent, this is
.2 percent, that's why we're changing. They're not
going to, you know, running out in the halls screaming
that there's confusion about that.

(Laughter.)