There’s a lot of activity right now in the 401(k) industry, but today I want to talk specifically about a court case that has been dragging out for the past six or seven years: Tibble v. Edison.

In this case, the Judge finally ruled that if you have a 401(k) plan, you’ve got a duty of prudence and loyalty to your participants. You must monitor your plans investments. With the correct process in place, you should be able to prudently choose investments for your plan.  
 
In this case, which was a $3 billion plan, the sponsors’ fiduciaries had both institutional share mutual funds and retail share mutual funds.
But what’s the difference between these? An institutional mutual fund is the lowest cost fund that one can purchase from a carrier. It also has no revenue sharing.

A retail mutual fund has higher fees. These fees compensate your broker/advisor and also may cover other plan related expenses.
 
The Judge in Tibble v. Edison ultimately determined that the trustees failed their duty of loyalty and prudence. The employer in Tibble v. Edison used retail mutual funds with revenue sharing, resulting in more expensive funds for the employees.  According to the Judge, the Plan Fiduciaries should have known if there was a cheaper share class they could have purchased and provided to their employees.

“As a sponsor, you’ve got a duty of prudence and loyalty to your participants.”

The employer could have used institutional funds that were less expensive and without revenue sharing. In the end, the employer ended up with significant penalties for failing in their duty of prudence.

As a plan sponsor it’s important that you understand all the fees in your plan so that you can make prudent decisions in the best interests of your employees.

If you’d like to learn more about safeguarding your retirement plan, pick up a free copy of my book, “Save America, Save! The Secrets of a Successful 401(k) Plan.” You can get your copy at www.EpsteinFinancial.com
 
Also, if you’re interested in having us evaluate your plan for you, we’d be happy to do a free consultation. Reach out to Krista Krupa from my office by email at kkrupa@epsteinfs.com or by phone at (413) 539-2371.
 
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.