United States: Tibble Part 1: What Tibble Tells Us About Revenue Sharing

Last Updated: May 14 2013
Article by Michael A. Vanic

On March 21, 2013, the U.S. Court of Appeals for the Ninth Circuit issued its decision in Tibble v. Edison International, one of the most closely watched decisions in the ERISA litigation world during the past several years. The trial court decided most of the issues in Tibble in favor of the defendants and the Court of Appeals has now affirmed all of the District Court's decisions with regard to those issues – although not always for the reasons articulated by the District Court.

In this article, we address just one of the significant aspects of Tibble: the issue of revenue sharing and how plan sponsors and fiduciaries should deal with it.

From 1997 until December 2006, the Edison 401(k) Plan stated that "[t]he cost of administration of the Plan will be paid by the Company." Beginning in 1999, the menu of investment options was expanded in the Plan in response to collective bargaining negotiations with the union representing many of the Edison employees. Some of the mutual funds that were added as investment options transferred a portion of their fees to the Plan's administrative service provider, Hewitt. In turn, Edison received a credit on its bills from Hewitt. Thus, the "revenue sharing" payments reduced the amount that Edison would otherwise have had to pay to Hewitt. The revenue sharing arrangement was disclosed by Edison in connection with collective bargaining negotiations and in the Plan SPDs. In December 2006, the Plan language was formally amended – consistent with how the Plan fiduciaries were already interpreting the Plan – to provide that "[t]he costs of administration of the Plan, net of any adjustments by service providers, will be paid by the Company."

The Plaintiffs claimed that Edison violated the Plan prior to its amendment because it benefited from the revenue sharing payments. Edison argued that the pre-2006 Plan language did not foreclose revenue sharing, that the Plan conferred "full discretion to construe and interpret [its] terms and provisions" upon the Plan fiduciaries, and that the fiduciaries had always interpreted the Plan to mean that Edison would pay the invoices that Hewitt submitted – after Hewitt applied the revenue sharing payments.

Edison argued that the court should defer to the Plan fiduciaries' interpretation of the Plan unless that interpretation was arbitrary or capricious.

The Court of Appeals concluded that the fiduciaries' interpretations of the Plan were entitled to deference since the Plan gave them discretion to interpret its terms.

In applying the abuse of discretion standard, the Tibble court relied heavily on evidence showing that revenue sharing was not hidden from participants, was expressly discussed between Edison and union negotiators, and was referred to in SPDs.

Plaintiffs in Tibble also argued that it was a prohibited transaction for Edison to receive the "benefit" of lower administrative costs as a result of revenue sharing. The argument was based on ERISA§406(b)(3), which provides: "A fiduciary with respect to a plan shall not receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan." In a somewhat controversial decision, the trial court viewed Edison not as a unified corporate entity, but in terms of its constituent parts and decided that since the fiduciary that selected the mutual funds that provided the revenue sharing was different than the fiduciary that received the benefit of the revenue sharing, no prohibited transaction occurred. This aspect of the trial court's decision was, and remains, controversial for the obvious reason that both fiduciaries were affiliated with Edison, albeit with different constituent parts.

The Ninth Circuit declined to adopt the trial court's reasoning, but nevertheless upheld the decision in favor of Edison on different grounds. Relying on a DOL regulation and advisory opinion that allows fiduciaries to be reimbursed for out-of-pocket expenses they incur, the court concluded that discounts on Hewitt's invoices constituted "reimbursement" rather than "consideration." Therefore, applying those revenue sharing payments to the administrative expenses did not violate §406(b)(3).

Although Edison prevailed with respect to the revenue sharing issues, there are still lessons to be learned from the case, and about revenue sharing in general.

First, plan fiduciaries need to understand how revenue sharing works. The DOL's 408b-2 regulation now requires service providers to disclose all of their direct and indirect compensation in writing, and fiduciaries are obligated to make sure they have received disclosures from all of their service providers – and to demand that service providers who fail to disclose do so. Failing to take the required action violates the regulation and may trigger a prohibited transaction. In short, prudent fiduciaries will take steps to know who is paying compensation (including revenue sharing), how much is being paid, and who is receiving the payment. Then, fiduciaries must determine if the total compensation is reasonable.

Second, it may be risky for a plan sponsor or fiduciary to rely on the Tibble trial court's decision that there was sufficient distinction between the fiduciary making the investment decision and the fiduciary benefitting from the revenue sharing. The DOL vigorously objected to the lower court's conclusion in that regard, arguing that 406(b)(3) is intended to prohibit transactions where fiduciaries make plan investment decisions that result in the company receiving an economic benefit from a third party. The Ninth Circuit did not embrace the district court's analysis, stating: "we reserve for another case whether the lower court's control determinations are defensible..." Thus, it is likely safer for plan fiduciaries to assume that committees that they appoint to oversee plan investments may be treated collectively, as an extension of the plan sponsor itself.

Third, it matters what the plan says about who, as between the plan and the sponsor, is responsible for paying the plan's administrative costs. Had the Edison Plan provided that the Plan, and not Edison, was responsible for the Plan's administrative expense, these issues would likely have been avoided completely. If, as in Tibble, the employer pays those costs – but pays them only after applying any revenue sharing to the service provider's bills – the plan should say so expressly in order to minimize any issue of plan interpretation.

Finally, in all cases, sponsors should review their plan language, and make sure that it clearly provides that the fiduciaries have discretion to interpret the plan terms. Absent that clear grant of discretion, courts may not defer to their interpretation of the plan terms, in which case the court, rather than the plan fiduciaries, will determine the appropriate interpretation of the plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions