A decade after the lawsuit was filed, judge rules prudent fiduciary would have invested in institutional shares
Updated Sept. 11
A U.S. District Court judge in Los Angeles has ruled for plaintiffs who claimed that executives of an Edison International Inc. 401(k) plan violated their fiduciary duties by selecting more expensive retail-priced shares vs. institutionally priced shares for identical investment options.
The ruling by Judge Stephen V. Wilson on Wednesday was issued exactly 10 years after plan participants filed their original complaint against Edison International — the parent of Southern California Edison Co., which offered the Edison 401(k) Savings Plan — and managers of the plan and other executives. The plan, based in Rosemead, Calif., had $384.2 million in assets as of Dec. 31, according to its latest Form 5500 filing.
The complaint's legal journey included a hearing before the U.S. Supreme Court. Justices ruled unanimously in May 2015 that sponsors have a "continuing duty" to monitor investments and "remove imprudent ones," and sent it back to the lower courts.
In his Aug. 16 ruling, Mr. Wilson accepted the parties’ agreement that there were damages of $7.52 million from 2001 to January 31, 2011. However, lawyers for plaintiffs and defendants had not agreed on subsequent damages. On Sept. 5, the parties filed a joint stipulation with the judge, setting additional damages at $5.64 million, which covered the period of Feb. 1, 2011 through July 31, 2017.
The complaint focused on 17 mutual funds that participants in the class-action suit argued should have been institutionally priced rather than retail priced. The judge agreed.
"For all 17 mutual funds at issue, a prudent fiduciary would have invested in the lower-cost institutional-class shares," the judge wrote in the case of Glen Tibble et al. vs. Edison International Inc. et al., branding some arguments by the defendants as "unsubstantiated" and "speculative."
Defendants "concede that they were wrong in not considering institutional shares," he added. "Because the institutional share classes are otherwise identical to the retail share classes, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary." Edison International and Southern California Edison "are reviewing the judgment issued in the Tibble litigation," the companies wrote in an email. "The funds in question have not been part of the offerings for employees since 2011 and the litigation has not raised any questions regarding the appropriateness of the current portfolio of funds."
Jerome Schlichter, the lead attorney for the participants, said in a news release: "We are pleased that the court agreed with our position. We look forward to continuing our work on behalf of the employees and retirees involved in this case, so that they may soon see a resolution and find relief." Mr. Schlichter is the founding and managing partner of law firm Schlichter, Bogard & Denton.