Every retirement plan in the country is going to have to go through a thorough review process to make sure it's meeting its fiduciary duty to monitor investment options in its plans.

That, according to one of the nation's leading ERISA authorities, is what a victory for the plaintiffs would mean in Tibble vs. Edison, the 401(k) case before the Supreme Court. 

"It's going to affect all sponsors. Every single plan in the country is going to have to go through a new due diligence process, to make sure they're meeting a prudent fiduciary standard to monitor their plan," said Paul Secunda, director of the Labor and Employment Law Program at Marquette University Law School. 

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Secunda's curiosity in the case is more than academic. He was one of eight legal scholars who filed a joint amicus brief to the Supreme Court in support of the plaintiffs and argued that no interpretation of ERISA justifies various lower court rulings in the case. 

The review of 401(k) investment menus Secunda predicts will not be easy, and for those plans that have followed the trend of building more options for participants, it will clearly be even more involved.

Edison International, for one, offered about 40 different mutual funds when it first incorporated retail-class shares into its plans more than 15 years ago. 

So reviews will take time and money. But in Secunda's mind, it is what's best to uphold the spirit, and the letter, of the law. 

"The first word in 'ERISA' is not 'employer,' it's 'employee'," said Secunda, who thinks history will show the Tibble case to be "positive" for both workers and employers, notwithstanding near-term headaches and costs he expects the decision will create. 

The question before the court is whether Edison, a California-based utility, was obligated to remove three retail-class shares of mutual funds when virtually identical and cheaper institutional shares existed. 

A U.S. district court originally ruled for Edison, finding the plan's trustees were protected by that portion of ERISA's statue of limitations that says fiduciary claims must be brought within six years of their occurrence. The three mutual funds in question were first offered in 1999, more than six years before the plaintiffs filed their suit. The 9th Circuit Court of Appeals upheld that decision. 

But the law also says fiduciaries have an ongoing duty to monitor plans, and that each failure to do so constitutes a new breach — and a new six-year period for claims to be brought. The relevance of that portion of the law is what the Tibble petitioners are asking the Supreme Court to consider. 

"That's what I thought the law was before Tibble, and it's how I've been teaching it all along," said Secunda, referring to the language in ERISA that addresses sponsors' ongoing duty to monitor investments. "More than anything, this case just clarifies what the law says." 

There is some indication the Supreme Court will agree, based on a reading of the justices' line of questioning during last week's oral arguments. 

"I think it is safe to assume that the court will rule for the employees and that the justices' explanation of the result will not be long-delayed, lengthy, or sharply divided," wrote Ronald Mann, a law professor, and both a former Supreme Court clerk and counsel in the Solicitor General's office, on scotusblog.com. 

Secunda not only expects a Tibble win, but thinks it will mean plaintiffs will have "additional confidence" to bring similar claims, a prediction shared by many others in the field.

"This is the way our system works. If there's blood in the water, and there is legal theory supporting that clients have not been treated fairly — it is not so much a good thing or a bad thing, as it is the reality of our adversarial legal system." 

But more than clarifying the law, Secunda, who sits on the ERISA Advisory Council, thinks Tibble vs. Edison in part raises deeper questions about the future of the retirement system. 

On the one hand, ERISA must be upheld. But if the expense of providing and monitoring a plan become too much, then there's the potential that employers would become discouraged and stop offering defined contribution plans. 

"I don't think reinforcing sponsors' duty to monitor plans will cause a lot of current employers to pull out," he explained. "(But) it will be factored into the cost of doing business. That may have the effect of changing the cost to employees." 

However the justices rule, it's hard to imagine sponsors and their advisors will ever want to take their duty to monitor lightly. 

Doing so with the care expected under ERISA will, of course, reduce sponsors' liability, Secunda said. 

Thus, "a meritless claim will be one where the employer has done their due diligence and can prove that," he said. "ERISA asks fiduciaries to be prudent—that is all. The law does not expect them to be clairvoyant."

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.