The recent news that the Supreme Court will be taking on a lawsuit involving a company’s 401(k) plan is sending shockwaves through the investment field.
Let’s start with the basics first. A 401(k) plan, also known as a defined contribution plan, is a retirement plan administered by companies on behalf of their employees. The employer selects the menu of investment options available to employees and also may offer to match an employee’s contribution to the plan. The employee sets aside a certain percentage of their pay to contribute to their plan and selects investments.
As company pensions have declined, the 401(k) has become the primary retirement vehicle, with over $4.5 trillion in assets, as this chart indicates:
So, what is the lawsuit the Supreme Court is considering? From the Wall Street Journal:
The court will focus on a narrow issue concerning the statute of limitations in the case, called Tibble v. Edison International . A ruling against Edison could trigger a wave of lawsuits against companies over the way they set up and manage 401(k) retirement accounts and similar plans, according to lawyers not involved with the case.
Tibble is one