Compliance October 2, 2014

Supreme Court Will Hear Tibble v. Edison Case

October 2, 2014 (PLANSPONSOR.com) – The law firm of Schlichter, Bogard & Denton says the U.S. Supreme Court has agreed to review the closely followed 401(k) fee litigation case, Tibble v. Edison International.
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The law firm says Tibble will be the first case involving litigation on excessive 401(k) fees heard by the Supreme Court, following a recommendation from the U.S. Solicitor General’s Office urging the top court to agree to review previous district and appellate court findings in the controversial case.

The case has a complicated procedural background, but court documents show that, during the initial bench trial, a district court held that utility company Edison International had breached its duty of prudence by offering retail-class mutual funds as retirement plan investments when lower-cost institutional funds were available. But the court subsequently limited that holding to three mutual funds that had first been offered to plan participants within the six-year limitations period applied within the Employee Retirement Income Security Act (ERISA)—meaning mutual funds placed on the plan menu more than six years before the date of the ERISA-based complaint were excluded from the decision.

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Tibble and counsel appealed that decision to the 9th Circuit, but the appeals court upheld the district court’s decision to limit the settlement to the three mutual funds adopted within the ERISA limitations period. This led to the Solicitor General’s brief, in which the government’s chief appellate lawyer sided with Tibble on the argument that such claims should not be time-barred—mainly because of the plan fiduciaries’ ERISA-mandated duty to periodically review investment options.

The plaintiff’s attorney in the Tibble case, Jerome Schlichter, of Schlichter, Bogard & Denton, tells PLANSPONSOR that the Solicitor General’s brief also suggests a win on another pending petition for certiorari filed in one of the firm’s other cases, Tussey v. ABB Inc. The Solicitor General refers to Tussey v. ABB Inc. in the brief (page 22, in footnote 8), citing similarities between the cases related to disloyalty and imprudence claims.

Schlichter says his firm and the plaintiffs in Tibble v. Edison still contend that Edison International failed to act in the best interest of its employees by allowing excessive fees to be charged in their 401(k) plan.

“The U.S. Solicitor General supported our position that this case affects the security and integrity of the U.S. retirement system, and we hope the Supreme Court will as well,” Schlichter adds.

Administration October 2, 2014

Judge Says Bankrupt City Can Dismiss Pension Obligations

October 2, 2014 (PLANSPONSOR.com) - A federal judge in California has ruled that the city of Stockton may eschew paying its pension obligations, and treat them just like other debts in its bankruptcy plan.
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According to news reports, U.S. Bankruptcy Judge Christopher Klein said, “California public employee retirement law … is simply invalid in the face of the supremacy clause of the United States Constitution.” That means federal bankruptcy and contract law applies to the pension fund, “just like anybody else,” Klein said.

The city has reached deals with all of its major creditors, except for Franklin Templeton Investments, which took Stockton to trial. An attorney for the investment firm said the firm is being offered one cent on each dollar for a $35 million loan given to Stockton in 2009 to build firehouses and parks, and to move its police dispatch center. The attorney told the judge that Stockton struck much more favorable deals with other creditors.

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In the lawsuit, Stockton argued that it must make its pension contributions for public employees before its creditors are paid the entire amount they are owed.

The California Public Employees Retirement System (CalPERS) praised Stockton’s stance, saying in a statement, “The real precedent of today’s proceedings is that even if municipalities are allowed to impair pensions in the rare situation of bankruptcy, cities like Stockton can make the smart decision to protect the pension promises for their public employees.” CalPERS said it is hopeful that Klein will approve Stockton’s adjustment plan, and noted that Stockton said in court that it can’t function as a city if pensions are impaired.

In a separate statement, the nation’s largest pension fund said it disagrees with the judge’s opinion on the issue of pension impairment and that the ruling “is not legally binding on any of the parties in the Stockton case or as precedent in any other bankruptcy proceeding and is unnecessary to the decision on confirmation of the City of Stockton’s plan of adjustment.” CalPERS said it will reserve any further comment until the court renders its final written decision.

CalPERS reacted positively to the plan of adjustment announced last year by the city of Stockton, which calls for it to continue to make all required pension payments to CalPERS.

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