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Supreme Court: employers must monitor 401(k) plans

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In a unanimous decision, the Supreme Court has ruled that employers have an ongoing obligation to monitor the 401(k) plans they offer their workers. The court also established a more flexible reading of the statute of limitations on when employees can sue should they believe their employer failed to uphold its responsibilities. 

The case, Tibble v. Edison, originated as a dispute between current and former workers for Edison, a public utility company in California. The workers argued that the retirement plan included several retail-class mutual funds with high fees when the company, as an institutional investor, could have invested in nearly identical plans with lower fees. 

“The reason fees matter is that over time the power of compounding is very significant. That can make the difference between a retirement that is comfortable and one that is not,” says Marcia Wagner, principal at The Wagner Law Group.

The Supreme Court didn’t pick a winner between the workers and the employer, sending the case back to a lower court instead. But it did say that employers can’t just set up a 401(k) plan and forget about it. They must pay attention to it over time, and that obligation doesn’t ever go away. Wagner says it’s a significant ruling that could have an impact on where pension plans invest their money and what fees retirees pay.

“When the Supreme Court rules unanimously, people listen. Now there are many various factors leading to fee compression in the 401(k) industry. This will be one more factor.” 

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