The Tibble appellate decision contains an abundance of points for ERISA plan fiduciaries to consider. The following are lessons that we believe plan fiduciaries should take away from this decision:
• Before including any mutual fund investments in a plan, plan fiduciaries should ask about any alternative class shares and make reasoned determinations on what class share would be in the plan participants’ best interests. If the fiduciaries determine that there are no salient differences between the retail and institutional class shares, they should inquire whether the plan meets the minimum investment requirement for institutional shares. If the plan does not meet this requirement, the fiduciaries should request that this requirement be waived.
• Plan fiduciaries should not automatically exclude retail-class mutual funds from their plans’ investment options. Selection of retail-class mutual funds is not automatically deemed an imprudent decision in the Ninth and Seventh Circuits, but plan fiduciaries should inquire about the availability of alternative class shares and make reasoned determinations as to which share classes should be included.
• Plan fiduciaries should monitor their service providers, including investment consultants, to ensure that they are analyzing all aspects of the current and recommended investment options.
• Plan fiduciaries should document the reasons for all decisions related to investments, especially if they decide to choose a more costly class share. Note that the Ninth Circuit stated that expense ratios for mutual funds ranging from 0.03 to 2% were considered ordinary.
• Plan fiduciaries should review the mutual funds in their plans and determine whether to include or remove certain funds. This review should include determining which mutual funds have revenue sharing, the amount of the revenue sharing, and the costs associated with these funds.
• Plan documents should contain language granting the plan administrator, and perhaps other fiduciaries, full discretion to construe and interpret the terms of the plan. This is especially important for plans in the Third, Sixth, and Ninth Circuits, because courts in these appellate circuits have applied a deferential standard of review to fiduciary duty claims as well as to benefit claims.
• Plan fiduciaries in the Sixth or Ninth Circuits should be aware that section 404(c) may not protect them from liability if a participant brings a claim alleging imprudent selection of investment funds.
If you have any questions on the Tibble decision or on fiduciary issues under ERISA, please contact Brad Huss or Angel L. Garrett at Trucker Huss.