That case, Tibble v. Edison International, was decided earlier this month (see “Court Buys Retail vs. Institutional Share Fee Claims” ) and, IMHO, is a very interesting case for several reasons: First, most of these cases have been tossed before they actually got to trial; second, this one was decided in the plaintiff/participant’s favor (and that’s a rarer occurrence than much of the coverage and “chatter” would indicate).  Moreover, here the court was far less deferential to the plan fiduciary decisions than other districts have been¹.      

But what I found most interesting about this case wasn’t the decision or the court’s rationale, though both will certainly have ramifications beyond this case.  Nor, in large part, were the plaintiffs’ arguments any more compelling than in previous actions.  In fact, like many of the revenue-sharing/excessive-fee cases filed since 2006, the plaintiffs here made a LOT of accusations—most of which were, as they have been in other cases (and rightfully, IMHO), summarily dismissed².  In this case, that included the selection of sector funds for the plan, having a money market fund on the menu rather than a stable value offering, and structuring the company stock fund as a unitized fund, rather than using share accounting.      

Short Falls    

Where this court did hold the plan fiduciaries³ liable was their decision to invest in retail shares rather than institutional shares of the same funds.  But what I found most striking about the case wasn’t the allegations or the adjudication, but rather that what was, by outward appearances anyway, a thoughtful and sophisticated plan review structure would manage to overlook such a basic opportunity.  

Here you have a large ($2-plus billion) plan that not only has an investment committee, but one separate from the benefits administration function.  Moreover, that investment committee has access to, and uses the services of, an investment adviser (Hewitt’s investment consulting arm) to review/select/monitor funds.  That’s a reasonably sophisticated set-up, and certainly what one might expect for a plan of this size.  

Now, the plan decision-makers are aware of revenue-sharing but consistently make decisions that support the notion that they do not take that into account.  In fact, the court noted that in 33 of 39 instances during the period in question, the employer made mutual fund replacements that actually decreased the revenue-sharing received by the plan, leaving the court to note, “This overall pattern is not consistent with a motive to increase revenue sharing.”  In fact, the court noted that “[t]he Plan fiduciaries did not make fund selections with an eye toward increasing revenue sharing and did not put the interests of SCE above those of the Plan participants.”⁴  

So, what do they fail to do?   

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¹ This writer—and the Department of Labor—have had issues with the approach embraced by the courts in more than one of these revenue-sharing suits (see “IMHO: Court “Case” at http://www.plansponsor.com/IMHO_Court_Case.aspx, “IMHO: The ‘Burden’ of Proof” at http://www.plansponsor.com/IMHO___The_Burden_of_Proof.aspx, “IMHO: Second Opinions” at http://www.plansponsor.com/pi_type11?RECORD_ID=45853, “IMHO:  Winning Ways” at http://www.plansponsor.com/OpinionsArticle.aspx?Id=4294984370, “IMHO: The Letter of the Law” at http://www.plansponsor.com/OpinionsArticle.aspx?Id=4294984283),  

² see “IMHO: Fighting Words” at http://www.plansponsor.com/IMHO___Fighting_Words.aspx  

³ Plaintiffs filed the suit as a class action on August 16, 2007, against Defendants Edison International, Southern California Edison Company, the Southern California Edison Company Benefits Committee, the Edison International Trust Investment Committee, the Secretary of the SCE Benefits Committee, SCE’s Vice President of Human Resources, and the Manager of SCE’s Human Resources Service Center.  

⁴ Nor was the revenue-sharing arrangement hidden.  The use of revenue-sharing to offset recordkeeping fees was not only discussed with employee unions, the court noted that the arrangement was disclosed to participants on approximately 17 occasions after the practice began in 1999.