Edison International was recently round liable for breaching its fiduciary obligations in accordance with the Employee Retirement Income Security Act (ERISA) after a suit from works alleged the energy utility company used unnecessarily expensive retirement plans. Damages come close to $8 million.
Edison International was found liable for the actual loss due to excessive fees paid in a suit from a class of Midwest Generation LLC employees. The company is an LLC of Edison International unit Edison Mission Group Inc. Workers alleged that the company chose 17 different mutual funds in connection with the workers’ 401(k) plan, but that all of them were more expensive “retail class” fund shares instead of the wholesale “institutional class” shares that come at a significantly lower cost to investors.
The judge found that any prudent fiduciary should have invested in wholesale “institutional class” shares instead of the more expensive “retail class” fund shares. Edison argued that they had the right to choose the higher cost shares offering revenue sharing – which helps to significantly offset administration fees paid by the company – because the company provided notification to the plan participants of the availability of revenue sharing.
The judge did not find the company’s argument viable, stating that no prudent fiduciary would purposefully choose to invest in more expensive retail shares based on speculative fear that higher administrative costs may be reallocated to plan participants.
The decision in the case followed 10 years of litigation. On the 10th anniversary of the lawsuit’s filing, the court ruled in favor of the plaintiffs, allowing them to receive damages in accordance with the suggested formula.