401(k)- Retail v. Institutional Funds
Posted on Mon, Oct 04, 2010
Tibble v. Edison – Retail v. Institutional Shares
Is your 401k investment line up composed of retail or institutional share classes?
The fees associated with your plan have been a hot topic for both Congress and the DOL. More recently, these plan fees are increasingly becoming the focus of class action law suits. In most of these class action complaints the plaintiffs have claimed a breach of fiduciary duties under ERISA relating to fees and expenses.
The most recent case of note is Tibble v. Edison International. It is the first case relating to excessive fees to render an opinion after trial. In this case the fiduciaries were found to have breached their duties by offering retail share classes of mutual funds within their 401(k) plans rather than less expensive institutional shares.
The court concluded that there was a breach of the fiduciary duty of prudence under ERISA section 404(a) because there was no demonstrable advantage to using the more expensive retail funds and there was no evidence to show that the fiduciaries considered offering the less expensive institutional shares.
This should sound alarm bells for all plan sponsors, mutual fund offerings should be investigated and if there are institutional share classes of their fund offerings for which they qualify, the institutional share classes should be adopted. In addition, questions should be asked as to why the retail mutual funds were included in the first place.
