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Federal Appeals Court Finds That Employer Breached ERISA Fiduciary Duties by Offering Retail-Level Mutual Funds in 401(k) Plan


March 2013

On March 21, the U.S. Court of Appeals for the Ninth Circuit, in Tibble v. Edison International, 9th Cir., No. 10-56406, held that the fiduciaries of a large 401(k) plan breached their fiduciary duties under ERISA by offering retail-level mutual funds as investment options under the plan without fully considering the possibility of offering institutional-level mutual funds that charged lower fees. The decision is an important one because it gives deference to the DOL’s longtime position that Section 404(c) of ERISA does not fully protect plan fiduciaries in their decisions regarding the investment options that are offered under a plan. On this issue, the Tibble decision is a departure from decisions of other federal appeal courts (the Seventh Circuit in particular), which have held that Section 404(c) provides extremely broad protection to plan fiduciaries in their decisions regarding plan investment options. Plan committees that oversee plan investment options should take note of this decision and its potential impact on the plan governance process. 

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