Court Opinion

ID: 1036158
Source: CourtListenerOpinion
Date Created: 2013-08-01 21:11:27.175172+00
Date Added: 2024-06-11T15:27:37.756449
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

GLENN TIBBLE; WILLIAM BAUER;              No. 10-56406
WILLIAM IZRAL; HENRY
RUNOWIECKI; FREDERICK                        D.C. No.
SUHADOLC; HUGH TINMAN, JR., as            2:07-cv-05359-
representatives of a class of similarly     SVW-AGR
situated persons, and on behalf of the
Plan,
                Plaintiffs-Appellants,

                  v.

EDISON INTERNATIONAL; THE
EDISON INTERNATIONAL BENEFITS
COMMITTEE, FKA The Southern
California Edison Benefits
Committee; EDISON INTERNATIONAL
TRUST INVESTMENT COMMITTEE;
SECRETARY OF THE EDISON
INTERNATIONAL BENEFITS
COMMITTEE; SOUTHERN CALIFORNIA
EDISON’S VICE PRESIDENT OF
HUMAN RESOURCES; MANAGER OF
SOUTHERN CALIFORNIA EDISON’S
HR SERVICE CENTER,
               Defendants-Appellees.
2           TIBBLE V. EDISON INTERNATIONAL

GLENN TIBBLE; WILLIAM BAUER;              No. 10-56415
WILLIAM IZRAL; HENRY
RUNOWIECKI; FREDERICK                        D.C. No.
SUHADOLC; HUGH TINMAN, JR., as            2:07-cv-05359-
representatives of a class of similarly     SVW-AGR
situated persons, and on behalf of the
Plan,
                  Plaintiffs-Appellees,
                                          ORDER AND
                  v.                       AMENDED
                                            OPINION
EDISON INTERNATIONAL; THE
SOUTHERN CALIFORNIA EDISON
BENEFITS COMMITTEE, incorrectly
named The Edison International
Benefits Committee; EDISON
INTERNATIONAL TRUST INVESTMENT
COMMITTEE; SECRETARY OF THE
SOUTHERN CALIFORNIA EDISON
COMPANY BENEFITS COMMITTEE,
incorrectly named Secretary of the
Edison International Benefits
Committee; SOUTHERN CALIFORNIA
EDISON’S VICE PRESIDENT OF
HUMAN RESOURCES; MANAGER OF
SOUTHERN CALIFORNIA EDISON’S
HR SERVICE CENTER,
              Defendants-Appellants.

      Appeal from the United States District Court
          for the Central District of California
      Stephen V. Wilson, District Judge, Presiding
               TIBBLE V. EDISON INTERNATIONAL                          3

                  Argued and Submitted
           November 6, 2012—Pasadena, California

                     Filed March 21, 2013
                    Amended August 1, 2013

Before: Alfred T. Goodwin, and Diarmuid F. O’Scannlain,
    Circuit Judges, and Jack Zouhary, District Judge.*

                            Order;
                 Opinion by Judge O’Scannlain

                           SUMMARY**

                               ERISA

    The panel affirmed the district court’s judgment in a class
action brought under the Employee Retirement Income
Security Act by beneficiaries who alleged that their pension
plan was managed imprudently and in a self-interested
fashion.

    Rejecting a continuing violation theory, the panel held
that under ERISA’s six-year statute of limitations, the district
court correctly measured the timeliness of claims alleging
imprudence in plan design from when the decision to include

  *
    The Honorable Jack Zouhary, United States District Judge for the
Northern District of Ohio, sitting by designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4            TIBBLE V. EDISON INTERNATIONAL

those investments in the plan was initially made. The panel
held that the beneficiaries did not have actual knowledge of
conduct concerning retail-class mutual funds, and so the
three-year statute of limitations set forth in ERISA § 413(2)
did not apply.

    The panel held that ERISA § 404(c), a safe harbor that
can apply to a pension plan that “provides for individual
accounts and permits a participant or beneficiary to exercise
control over the assets in his account,” did not apply.
Disagreeing with the Fifth Circuit, the panel applied Chevron
deference to the Department of Labor’s final rule interpreting
§ 404(c).

    The panel declined to consider for the first time on appeal
defendants’ arguments concerning class certification.

    The panel affirmed the district court’s grant of summary
judgment to defendants on the beneficiaries’ claim that
revenue sharing between mutual funds and the administrative
service provider violated the pension plan’s governing
document and was a conflict of interest. Agreeing with the
Third and Sixth Circuits, and disagreeing with the Second
Circuit, the panel held that, as in cases challenging denials of
benefits, an abuse of discretion standard of review applied in
this fiduciary duty and conflict-of-interest suit because the
plan granted interpretive authority to the administrator.

   The panel held that the defendants did not violate their
duty of prudence under ERISA by including in the plan menu
mutual funds, a short-term investment fund akin to a money
market, and a unitized fund for employees’ investment in the
company’s stock.
             TIBBLE V. EDISON INTERNATIONAL                 5

    The panel affirmed the district court’s holding, after a
bench trial, that the defendants were imprudent in deciding to
include retail-class shares of three specific mutual funds in
the plan menu because they failed to investigate the
possibility of institutional-share class alternatives.

                        COUNSEL

Michael A. Wolff, Schlichter, Bogard & Denton, LLP, St.
Louis, MO, argued the cause and filed the briefs for the
plaintiffs-appellants. With him on the briefs were Jerome J.
Schlichter, Nelson G. Wolff, and Jason P. Kelly, Schlichter,
Bogard & Denton, LLP, St. Louis, MO.

Jonathan D. Hacker, O’Melveny & Myers LLP, Washington,
DC, argued the cause and filed the briefs for the defendants-
appellees/cross-appellants. With him on the briefs were
Walter Dellinger, Robert N. Eccles, Gary S. Tell, O’Melveny
& Myers LLP, Washington, D.C., as well as Matthew Eastus,
and China Rosas, O’Melveny & Myers LLP, Los Angeles,
CA.

Elizabeth Hopkins, U.S. Department of Labor, Washington,
DC, argued the cause and filed the brief for the Secretary of
Labor as amicus curiae in support of plaintiffs-appellants.
With her on the brief were Stacey E. Elias, M. Patricia Smith,
and Timothy D. Hauser.

Jay E. Sushelsky, AARP Foundation Litigation, Washington,
DC, filed the brief for the AARP as amicus curiae in support
of plaintiffs-appellants. With him on the brief was Melvin
Radowitz, AARP, Washington, D.C.
6            TIBBLE V. EDISON INTERNATIONAL

Nicole A. Diller, Alison B. Willard, and Abbey M. Glenn,
Morgan, Lewis & Bockius LLP, San Francisco, CA, filed the
brief for the California Employment Law Council as amicus
curiae in support of defendants-appellees/cross-appellants.

Thomas L. Cubbage III, Covington & Burling LLP,
Washington, DC, filed the brief for the Investment Company
Institute as amicus curiae in support of defendants-
appellees/cross-appellants. With him on the brief was S.
Michael Chittenden, Covington & Burling LLP, Washington,
DC.

                           ORDER

                               I

   The opinion filed March 21, 2013, and published at
711 F.3d 1061, is amended as follows:

    Beginning on slip opinion page 28 delete the text from <
At least one court has held that in cases implicating ERISA
§ 404 fiduciary duties, > through slip opinion 31 < difficulties
with John Blair impel us to apply Firestone, and so we do. >.
In place of the deletion substitute the following:

    < The Second Circuit has declined to apply the arbitrary
and capricious standard from Firestone outside of the benefits
context. See John Blair Commc’ns, Inc. Profit Sharing Plan
v. Telemundo Grp., Inc. Profit Sharing Plan, 26 F.3d 360,
369–70 (2d Cir.1994). Other circuits have read Firestone
more broadly, stating that its deference can reach beyond
ERISA actions that arise under section 1132(a)(1). See, e.g.,
Hunter v. Caliber Sys., Inc., 220 F.3d 702, 711 (6th Cir.
             TIBBLE V. EDISON INTERNATIONAL                   7

2000) (“[W]e find no barrier to application of the arbitrary
and capricious standard in a case such as this not involving a
typical review of denial of benefits.”); Moench v. Robertson,
62 F.3d 553, 565 (3d Cir.1995) (“[W]e believe that after
Firestone, trust law should guide the standard of review over
claims, such as those here, not only under section
1132(a)(1)(B) but also over claims filed pursuant to 29 U.S.C.
§ 1132(a)(2) based on violations of the fiduciary duties set
forth in [ERISA § 404].”).

     In relevant part, John Blair involved a challenge under
ERISA § 404 to how assets had been allocated. 26 F.3d at
370. The plaintiffs argued that the defendant had breached its
fiduciary duty by retaining surplus income generated by
virtue of a lag between when plan members elected to move
assets and the actual transfer of the funds. Id. at 362, 368. As
a defense, the fiduciary argued that the terms of the Plan
authorized it to allocate the assets as it had, and that because
the Plan “gave the plan committee discretion to interpret the
provisions of the [P]lan” the court was bound to approve of
its allocation unless it determined that the decision to do so
had been “arbitrary and capricious” under Firestone. Id. at
369.

    Rejecting that framework, the Second Circuit instead
decided to evaluate the claim under the “prudent person
standard articulated in § 404 of ERISA.” Id. As support for
this approach, the court cited a pre-Firestone authority from
the Third Circuit and a pair of district court decisions from
within the Second Circuit. See Struble v. N.J. Brewery Emps.
Welfare Trust Fund, 732 F.2d 325, 333–34 (3d Cir. 1984);
Ches v. Archer, 827 F. Supp. 159, 165–66 (W.D.N.Y. 1993);
Trapani v. Consol. Edison Emps.’ Mut. Aid Soc’y, Inc., 693 F.
Supp. 1509, 1515 (S.D.N.Y. 1988). Relying on John Blair
8               TIBBLE V. EDISON INTERNATIONAL

and Struble, beneficiaries argue that their claim is similarly
exempt from Firestone. We disagree.

    As noted above, this specific challenge by beneficiaries
has been brought under 29 U.S.C. § 1104(a)(1)(D), which is
part of ERISA § 404. See Tibble, 639 F. Supp. 2d at 1096
(explaining that beneficiaries “move[d] for summary
judgment on the basis that [Edison] violated the terms of the
Plan by failing to pay the full extent of Hewitt’s
recordkeeping costs”). While subsection (a)(1)(B) codifies
the statutory prudent-person standard, subsection (a)(1)(D)
simply requires that actions be in line with the plan
documents. See 29 U.S.C. § 1104(a)(1). John Blair was an
attempt by a fiduciary to escape from otherwise applicable
duties on the basis of a plan interpretation. The Second
Circuit declined to apply Firestone deference because of a
concern about bootstrapping. See John Blair, 26 F.3d at 369.
Similarly, the district court decisions it favorably cited were
examples of fiduciaries trying to weaken or evade the
statutory standard of prudence. See Ches, 827 F. Supp. at 165
(rejecting defendants’ argument that “they cannot be found to
have breached their fiduciary duties in the absence of an
allegation and a showing that their determinations had been
arbitrary and capricious”); Trapani, 693 F. Supp. at 1514
(“Defendants argue that the court must apply an arbitrary and
capricious standard, rather than the prudent man standard
specifically set forth in the statute.”).1

    1
     The Struble case is even farther afield; in relevant part, it did not
concern an issue of plan interpretation at all. See 732 F.2d at 331–35.
Arising during a period of lower court uncertainty about the proper
standard(s) of review under ERISA, see de Nobel v. Vitro Corp., 885 F.2d
1180, 1184–85 (4th Cir. 1989), Struble involved a claim that the employer
trustee had breached its duties of care and loyalty by “failing to collect the
amount of Employer contributions allegedly required by the Employers’
               TIBBLE V. EDISON INTERNATIONAL                             9

    Edison is not making any such argument here, as
beneficiaries have not pursued this challenge as a violation of
the prudent person standard; instead, their contention rises or
falls exclusively on what Plan section 19.02 allows.2 As to
issues of plan interpretation that do not implicate ERISA’s
statutory duties, they are subject to Firestone.

    At least three considerations prompt us to hold that the
Firestone framework can govern issues of plan interpretation
even when they arise outside the benefits context. First,
while the Firestone case did not announce a holding beyond
benefits, its rationale did not stem from an interpretive gloss
on the welfare-benefits provision of ERISA. See 489 U.S. at
108, 109 (“ERISA does not set out the appropriate standard
of review for actions under § 1132(a)(1)(B) challenging
benefit eligibility determinations.”).      Instead, because
“ERISA abounds with the language and terminology of trust
law” and because of legislative history to that effect, that
body of law—not a discrete provision—dictated “the
appropriate standard of review.” Id. at 110–11 (“Trust
principles make a deferential standard of review appropriate
when a trustee exercises discretionary powers.”). The law of
trusts was the basis for the dual-track standard whereby,
absent a contrary designation, de novo review applies. See id.
at 111. The Supreme Court’s most recent analysis of

respective bargaining agreements.” 732 F.2d at 331. The Third Circuit
decided to apply “the standards set forth explicitly in ERISA” rather than
the arbitrary and capricious standard. Id. at 333.
  2
    We thus leave for another day what judicial-review standard would
apply in a case like John Blair where the Plan is said to authorize what the
statutory duties codified in ERISA forbid. Next, in Part V.B of the
opinion, we explain why these beneficiaries’ claim that revenue sharing
was a conflict of interest under ERISA § 406 fails.
10           TIBBLE V. EDISON INTERNATIONAL

Firestone reenforces that the deference underlying that case
is a product of what trust law has to say about matters of
interpretation. See Conkright, 130 S. Ct. at 1646 (“[U]nder
trust law, the proper standard of review of a trustee’s decision
depends on the language of the instrument creating the trust.
If the trust documents give the trustee power to construe
disputed or doubtful terms, . . . the trustee’s interpretation
will not be disturbed if reasonable.” (alterations in original)
(internal citation and quotation marks omitted)).

    Second, one reason the Court in Conkright rejected an
exception the Second Circuit had carved out from Firestone
deference was its potential to create “uniformity problems.”
130 S. Ct. at 1650. The concern was that if de novo review
sometimes applied, fiduciaries would be in the “impossible
situation” of being subject to different plan interpretations by
courts depending on the particular facts of the cases where the
interpretive issue had arisen. Id. Not applying Firestone
deference in this case would risk similar difficulties, as parts
of a plan could be assigned one meaning when litigated under
section 1132(a)(1)(B) and another meaning when litigated,
like here, under section 1104(a)(1)(D).

    Third, we observe that consistently applying Firestone to
the question of what a plan means, “by permitting an
employer to grant primary interpretive authority over an
ERISA plan to the plan administrator,” has the virtue of
“preserv[ing] the ‘careful balancing’ on which ERISA is
based.” Id. at 1649.          In particular, it helps keep
administrative and litigation expenses under control, which
otherwise could “discourage employers from offering
[ERISA] plans in the first place.” Id. (alteration in
original). >.
             TIBBLE V. EDISON INTERNATIONAL                  11

    An amended opinion is filed concurrently with this order.

                              II

    With these amendments, the panel has voted unanimously
to deny the petition for rehearing. Judge O’Scannlain has
voted to deny the petition for rehearing en banc, and Judges
Goodwin and Zouhary have so recommended.

    The full court has been advised of the petition for
rehearing en banc, and no judge has requested a vote on
whether to rehear the matter en banc. Fed. R. App. P. 35.
The petition for rehearing and petition for rehearing en banc
is DENIED.

    No further petitions for panel rehearing or for rehearing
en banc will be entertained.

                          OPINION

O’SCANNLAIN, Circuit Judge:

    Current and former beneficiaries sued their employer’s
benefit plan administrator under the Employee Retirement
Income Security Act charging that their pension plan had
been managed imprudently and in a self-interested fashion.
We must decide, among other issues, whether the Act’s
limitations period or its safe harbor provision are obstacles to
their suit.
12           TIBBLE V. EDISON INTERNATIONAL

                               I

                               A

    Edison International is a holding company for various
electric utilities and other energy interests including Southern
California Edison Company and the Edison Mission Group
(collectively “Edison”), which itself consists of the Chicago-
based Midwest Generation.               Like most employer-
organizations offering pensions today, Edison sponsors a
401(k) retirement plan for its workforce. During litigation,
the total valuation of the “Edison 401(k) Savings Plan” was
$3.8 billion, and it served approximately 20,000 employee-
beneficiaries across the entire Edison International workforce.
Unlike the guaranteed benefit pension plans of yesteryear,
this kind of defined-contribution plan entitles retirees only to
the value of their own individual investment accounts. See
29 U.S.C. § 1002(34). That value is a function of the inputs,
here a portion of the employee’s salary and a partial match by
Edison, as well as of the market performance of the
investments selected.

    To assist their decision making, Edison employees are
provided a menu of possible investment options. Originally
they had six choices. In response to a study and union
negotiations, in 1999 the Plan grew to contain ten institutional
or commingled pools, forty mutual fund-type investments,
and an indirect investment in Edison stock known as a
unitized fund. The mutual funds were similar to those offered
to the general investing public, so-called retail-class mutual
funds, which had higher administrative fees than alternatives
available only to institutional investors. The addition of a
wider array of mutual funds also introduced a practice known
as revenue sharing into the mix. Under this, certain mutual
              TIBBLE V. EDISON INTERNATIONAL                       13

funds collected fees out of fund assets and disbursed them to
the Plan’s service provider. Edison, in turn, received a credit
on its invoices from that provider.

    Past and present Midwest Generation employees Glenn
Tibble, William Bauer, William Izral, Henry Runowiecki,
Frederick Suhadolc, and Hugh Tinman, Jr. (“beneficiaries”)
sued under the Employee Retirement Income Security Act of
1974 (ERISA), 29 U.S.C. § 1001, et seq., which governs the
401(k) Plan, and obtained certification as a class action
representing the whole of Edison’s eligible workforce.1
Beneficiaries objected to the inclusion of the retail-class
mutual funds, specifically claiming that their inclusion had
been imprudent, and that the practice of revenue sharing had
violated both the Plan document and a conflict-of-interest
provision. Beneficiaries also claimed that offering a unitized
stock fund, money market-style investments, and mutual
funds, had been imprudent.

                                  B

    The district court granted summary judgment to Edison
on virtually all these claims. See Tibble v. Edison Int’l,
639 F. Supp. 2d 1074 (C.D. Cal. 2009). The court also
determined that ERISA’s limitations period barred recovery
for claims arising out of investments included in the Plan
more than six years before beneficiaries had initiated suit. Id.
at 1086; see 29 U.S.C. § 1113(1)(A).

    Remaining for trial after these rulings was beneficiaries’
claim that the inclusion of specific retail-class mutual funds

  1
    As discussed infra Part IV, we express no opinion in this case on
whether beneficiaries’ suit was properly cognizable as a class action.
14             TIBBLE V. EDISON INTERNATIONAL

had been imprudent. Without retreating from an earlier
decision—at summary judgment—that retail mutual funds
were not categorically imprudent, the court agreed with
beneficiaries that Edison had been imprudent in failing to
investigate the possibility of institutional-class alternatives.
See Tibble v. Edison Int’l, No. CV 07-5359, 2010 WL
2757153, at *30 (C.D. Cal. July 8, 2010). It awarded
damages of $370,000.

   Beneficiaries timely appeal the district court’s partial
grant of summary judgment to Edison.2 Edison timely cross
appeals, chiefly contesting the post-trial judgment.

                                    II

    Beneficiaries’ first contention on appeal is that the district
court incorrectly applied ERISA’s six-year limitations period
to bar certain of their claims. Edison argues for application
of the shorter three-year period. We reject both parties’
approaches to timeliness.

                                    A

    For claims of fiduciary breach, ERISA § 413 provides
that no action may be commenced “after the earlier of”:

         (1) six years after (A) the date of the last
         action which constituted a part of the breach
         or violation, or (B) in the case of an omission

     2
      In a separately filed memorandum disposition, we addressed
beneficiaries’ appeal from the district court’s decision not to award fees
or costs to either party. See Tibble, et al. v. Edison Int’l., No. 11-56628,
2013 WL 1150788 (9th Cir. Mar. 21, 2013).
             TIBBLE V. EDISON INTERNATIONAL                 15

       the latest date on which the fiduciary could
       have cured the breach or violation, or

       (2) three years after the earliest date on which
       the plaintiff had actual knowledge of the
       breach or violation;

       except that in the case of fraud or
       concealment, such action may be commenced
       not later than six years after the date of
       discovery of such breach or violation.

29 U.S.C. § 1113.

                              B

                              1

    Beneficiaries argue that the court erred by measuring the
timeliness under ERISA § 413(1) for claims alleging
imprudence in plan design from when the decision to include
those investments in the Plan was initially made. They are
joined in this contention by the United States Department of
Labor (“DOL”). Because fiduciary duties are ongoing, and
because section 413(1)(A) speaks of the “last action” that
constitutes the breach, these claims are said to be timely for
as long as the underlying investments remain in the plan.
Essentially, they argue that we should either equitably engraft
onto, or discern from the text of section 413 a “continuing
violation theory.”

   Beneficiaries’ argument, though, would make hash out of
ERISA’s limitation period and lead to an unworkable result.
We have previously declined to read the section 413(2)
16           TIBBLE V. EDISON INTERNATIONAL

actual-knowledge provision as permitting the maintenance of
the status-quo, absent a new breach, to restart the limitations
period under the banner of a “continuing violation.” Phillips
v. Alaska Hotel & Rest. Emps. Pension Fund, 944 F.2d 509,
520 (9th Cir. 1991). In Phillips, the controlling opinion did
not reach whether the same was true for section 413(1)(A).
944 F.2d at 520–21. Today we hold that the act of
designating an investment for inclusion starts the six-year
period under section 413(1)(A) for claims asserting
imprudence in the design of the plan menu.

    Preliminarily, we observe that in the case of omissions the
statute already embodies what the beneficiaries urge for the
last action. Section 413(1)(B) ties the limitations period to
“the latest date on which the fiduciary could have cured the
breach or violation.” Importing the concept into (1)(A), then,
would render (1)(B) surplusage. This must be avoided when,
as here, distinct meanings can be discerned from statutory
parts. See Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034,
2043 (2012).

    Second, beneficiaries’ logic “confuse[s] the failure to
remedy the alleged breach of an obligation, with the
commission of an alleged second breach, which, as an overt
act of its own recommences the limitations period.” Phillips,
944 F.2d at 523 (O’Scannlain, J., concurring). Characterizing
the mere continued offering of a plan option, without more,
as a subsequent breach would render section 413(1)(A)
“meaningless and [could even] expose present Plan
fiduciaries to liability for decisions made by their
predecessors—decisions which may have been made decades
before and as to which institutional memory may no longer
exist.” David v. Alphin, 817 F. Supp. 2d 764, 777 (W.D.N.C.
2011), aff’d, 704 F.3d 327, 342–43 (4th Cir. 2013). We
             TIBBLE V. EDISON INTERNATIONAL                   17

decline to proceed down that path. As with the application of
any statute of limitations, we recognize that injustices can be
imagined, but section 413(1) “suggests a judgment by
Congress that when six years has passed after a breach or
violation, and no fraud or concealment occurs, the value of
repose will trump other interests, such as a plaintiff’s right to
seek a remedy.” Larson v. Northrop Corp., 21 F.3d 1164,
1172 (D.C. Cir. 1994).

    Finally, we are unpersuaded by DOL’s suggestion that
our holding will give ERISA fiduciaries carte blanche to
leave imprudent plan menus in place. The district court
allowed beneficiaries to put on evidence that significant
changes in conditions occurred within the limitations period
that should have prompted “a full due diligence review of the
funds, equivalent to the diligence review Defendants conduct
when adding new funds to the Plan.” These particular
beneficiaries could not establish changed circumstances
engendering a new breach, but the district court was entirely
correct to have entertained that possibility. See, e.g., Quan v.
Computer Scis. Corp., 623 F.3d 870, 878–79 (9th Cir. 2010)
(explaining that “fiduciaries are required to act ‘prudently’
when determining whether or not to invest, or continue to
invest”). The potential for future beneficiaries to succeed in
making that showing illustrates why our interpretation of
section 413(1)(A) will not alter the duty of fiduciaries to
exercise prudence on an ongoing basis.

                               2

   For its part, Edison contends that beneficiaries had actual
knowledge of conduct concerning retail-class mutual funds,
18                TIBBLE V. EDISON INTERNATIONAL

triggering ERISA § 413(2), more than three years before
August 16, 2007, when the complaint was filed.3

    In order to apply ERISA’s limitation periods, the court
“must first isolate and define the underlying violation.”
Ziegler v. Conn. Gen. Life Ins. Co., 916 F.2d 548, 550–51
(9th Cir. 1990). Here, as we explore in greater detail below,4
the crux of beneficiaries’ successful theory of liability at trial
was that alternatives to retail shares had not been
investigated—not simply that their inclusion had been
imprudent. Second, specific to section 413(2), the court must
inquire as to when the plaintiffs had actual knowledge of that
violation or breach. Id. at 552. Edison points to Summary
Plan Descriptions provided to all participants, as well as to
mutual fund prospectuses furnished to investors, claiming
that these materials made the inclusion of retail shares
known. Similar information was also furnished to the unions
during negotiations.

    But as the nature of the breach makes apparent, Edison is
citing evidence of the wrong type of knowledge. When
beneficiaries claim “the fiduciary made an imprudent
investment, actual knowledge of the breach [will] usually
require some knowledge of how the fiduciary selected the
investment.” Brown v. Am. Life Holdings, Inc., 190 F.3d 856,
859 (8th Cir. 1999). For example, in Waller v. Blue Cross of

 3
    We consider this argument only as it affects the post-trial verdict. This
is so because, as Edison clarified in its reply brief, this is the extent of its
contention, and because our decision to affirm the grant of summary
judgment on beneficiaries’ other claims makes a broader ruling
unnecessary.
  4
      See infra Part VII.
             TIBBLE V. EDISON INTERNATIONAL                 19

California, we explained that the three-year ERISA
limitations period did not run from the time when the
plaintiffs had purchased the subject annuities because their
theory of breach was that the fiduciaries had “unlawfully
employ[ed] an infirm bidding process” to acquire such
annuities. 32 F.3d 1337, 1339, 1341 (9th Cir. 1994); see also
Frommert v. Conkright, 433 F.3d 254, 272 (2d Cir. 2006)
(“The flaw with the district court’s conclusion [under section
413(2)] is that the plaintiffs’ claim for breach of fiduciary
duty is not premised solely on the defendants’ adoption of the
phantom account; rather, it is based on allegations that the
defendants made ongoing misrepresentations about the
origins of the phantom account in an effort to justify its
usage.”).

    Therefore, because these beneficiaries’ trial claims hinged
on infirmities in the selection process for investments, we
hold that mere notification that retail funds were in the Plan
menu falls short of providing “actual knowledge of the breach
or violation.” § 413(2).

                             III

    On its cross appeal, Edison claims that beneficiaries’
entire case is proscribed by ERISA § 404(c), a safe harbor
that can apply to a pension plan that “provides for individual
accounts and permits a participant or beneficiary to exercise
control over the assets in his account.” 29 U.S.C.
§ 1104(c)(1)(A).

    As the Edison 401(k) is clearly such a plan we consider
the terms of section 404(c). It provides that:
20             TIBBLE V. EDISON INTERNATIONAL

         [N]o person who is otherwise a fiduciary shall
         be liable under this part for any loss, or by
         reason of any breach, which results from such
         participant’s or beneficiary’s exercise of
         control.

Id. § 1104(c)(1)(A)(ii).

    Edison reads this statutory language as insulating it from
all of beneficiaries’ claims because each challenged
investment was a product of a “participant’s or beneficiary’s
exercise of control,” by virtue of his selection of it from the
Plan menu. Disagreeing, the DOL directs us to its previously
announced interpretations. In a 1992 regulation it stated that
in order to fall within section 404’s ambit, the breach or loss
would need to be the “direct and necessary result” of the
action by the beneficiary. 29 C.F.R. § 2550.404c-1(d)(2). A
preamble that went through the notice-and-comment process
and appeared in the agency’s final rule, stated that “the act of
limiting or designating investment options which are intended
to constitute all or part of the investment universe of an
ERISA section 404(c) plan is a fiduciary function which . . .
is not a direct or necessary result of any participant
direction.” 57 Fed. Reg. 46,922, 46,924 n.27 (Oct. 13, 1992).

    To “reiterate its long held position,” 73 Fed. Reg. 43,014,
43,018 (July 23, 2008), DOL recently codified this guidance
in the body of a new regulation so that it now appears in the
Code of Federal Regulations, rather than in the preamble to
a rule.5 See 75 Fed. Reg. 64,910, 64,946 (Oct. 20, 2010)

  5
    Final rules are published in their entirety in the Federal Register but,
by convention, their preambles are left out of the Code of Federal
               TIBBLE V. EDISON INTERNATIONAL                         21

(codified at 29 C.F.R. pt. 2550) (Section 404(c) “does not
serve to relieve a fiduciary from its duty to prudently select
and monitor any service provider or designated investment
alternative offered under the plan”).         This amended
regulation, however, was not in effect during the time period
at issue in this case.6 Our inquiry therefore centers on what
appeared in the 1992 final rule.

    As to these earlier materials, the parties and amici join
issue on the status this court should accord them.
Beneficiaries and DOL argue that they are entitled to the
robust sort of administrative-law deference dictated by
Chevron, U.S.A., Inc. v. Natural Resource Defense Council,
Inc., 467 U.S. 837, 842–43 (1984). Edison claims that a
preamble is not the type of material to which courts properly
defer. In any event, the California Employment Law Council,
as amicus for Edison, argues that DOL’s interpretation is an
impermissible construction of the statute. See id. (“If the
intent of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.”). Both Edison
and the Employment Council rely on a divided opinion from
the Fifth Circuit, and on an older case from the Third Circuit
in which the alleged violations preceded the effective date of
even the 1992 rule. See Langbecker v. Elec. Data Sys. Corp.,
476 F.3d 299, 310–12 (5th Cir. 2007); In re Unisys Sav. Plan
Litig., 74 F.3d 420, 444–48 & n.21 (3d Cir. 1996).

Regulations. See Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 310
n.22 (5th Cir. 2007).
  6
   See id. at 64,910 (“Notwithstanding the effective date, the final rule
and amendments will apply to individual account plans for plan years
beginning on or after November 1, 2011.”).
22           TIBBLE V. EDISON INTERNATIONAL

   Several other circuits, by contrast, have accepted the
position advocated by DOL. See, e.g., Pfeil v. State St. Bank
& Trust Co., 671 F.3d 585, 599–600 (6th Cir. 2012) (favoring
DOL’s position in its “amicus curiae brief in this appeal and
with the preamble to the regulations implementing the safe
harbor”), cert. denied, 133 S. Ct. 758 (2012); Howell v.
Motorola, Inc., 633 F.3d 552, 567 (7th Cir. 2011) (similar);
DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 n.3 (4th Cir.
2007) (implicitly deferring to the 1992 rulemaking).

                              A

    The Chevron framework can apply only if two initial
conditions are met: (1) Congress has delegated the power to
that agency to pronounce rules that carry the force of law and
(2) the interpretation for which deference is sought was
rendered pursuant to that authority. Price v. Stevedoring
Servs. of Am., Inc., 697 F.3d 820, 833 (9th Cir. 2012) (en
banc). That was the teaching of United States v. Mead Corp.,
533 U.S. 218, 226–27 (2001).

    Congress gave the Secretary of Labor authority to
promulgate binding regulations interpreting Title I of ERISA,
which includes section 404(c). 29 U.S.C. § 1135. It also
empowered the Secretary to bring civil enforcement actions.
Id. § 1132(a)(2). These charges plainly satisfy the first
requirement under Mead. See, e.g., Gonzales v. Oregon,
546 U.S. 243, 258 (2006) (explaining that “[i]n many cases
authority is clear because the statute gives an agency broad
power to enforce” its provisions). As for Mead’s second
consideration, we do not view the fact that the interpretation
appears in a final rule’s preamble as disqualifying it from
Chevron deference. Edison cites nothing authoritative for
cabining that doctrine to materials destined for the pages of
               TIBBLE V. EDISON INTERNATIONAL                         23

the Code of Federal Regulations. Though not a necessary
condition, a notice-and-comment rule is virtually assured
eligibility for Chevron deference. See, e.g., Mead, 533 U.S.
at 230–31; Renee v. Duncan, 686 F.3d 1002, 1011 (9th Cir.
2012). Additionally, other factors significant to whether
deference is owed are present here. DOL has expressed its
position for two decades, ERISA is “an enormously complex
and detailed statute,” Conkright v. Frommert, 130 S. Ct.
1640, 1644 (2010), and this question is of central import to its
administration. See Barnhart v. Walton, 535 U.S. 212, 222
(2002).7

                                   B

    Because the 1992 interpretation clears the Mead
threshold, we proceed to the well-trod Chevron inquiry.8 This
calls on the court to examine the plain meaning of the text
and apply other relevant canons of statutory interpretation to
ascertain whether Congress had a fixed “intention on the
precise question at issue” that the agency must abide.
Wilderness Soc’y v. U.S. Fish & Wildlife Serv., 353 F.3d
1051, 1060 (9th Cir. 2003) (en banc).

     7
    Cf. Stern v. IBM Corp., 326 F.3d 1367, 1371–72 (11th Cir. 2003)
(commenting that the “views of the agency entrusted with interpreting and
enforcing ERISA carry considerable weight”).
 8
   No party or amicus has invoked Auer deference, which governs agency
interpretations of its “own ambiguous regulation.” Gonzales, 546 U.S. at
255. To qualify for that, the DOL would need to show ambiguity and
would need to demonstrate that its regulation, which added the modifier
“direct or necessary,” more than parroted or “paraphrase[d] the statutory
language.” Id. at 257; see Langbecker, 476 F.3d at 310 n.22 (questioning
the presence of ambiguity in the 1992 regulation).
24           TIBBLE V. EDISON INTERNATIONAL

    If so, “that intention is the law and must be given effect.”
Id. If not, the court defers to the agency, provided that its
interpretation is not “arbitrary, capricious, or manifestly
contrary to the statute.” Id. at 1059; see also Nat’l Cable &
Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967,
980 (2005) (explaining that “ambiguities in statutes within an
agency’s jurisdiction to administer are delegations of
authority to the agency to fill the statutory gap in reasonable
fashion”). These inquiries can be pursued in two steps, or all
at once. Compare Wilderness Soc’y, 353 F.3d at 1059, with
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218 n.4
(2009) (embracing single-step analysis because “if Congress
has directly spoken to an issue then any agency interpretation
contradicting what Congress has said would be
unreasonable”).

    In Langbecker, the Fifth Circuit concluded that the DOL’s
interpretation of section 404(c) could not receive Chevron
deference “because it contradicts the governing statutory
language.” 476 F.3d at 311. Respectfully, we disagree.
Section 404(c) speaks of “any breach, which results from” a
participant’s exercise of control. “Result from” means “[t]o
arise as a consequence, effect, or outcome of some action.”
Oxford English Dictionary (3d ed. 2010); see Wilderness
Soc’y, 353 F.3d at 1060 (“[A] fundamental canon of
construction provides that unless otherwise defined, words
will be interpreted as taking their ordinary, contemporary,
common meaning.” (internal quotation marks ommitted)).

    Thus as cogently explained by DOL in its brief, “the
selection of the particular funds to include and retain as
investment options in a retirement plan is the responsibility
of the plan’s fiduciaries, and logically precedes (and thus
cannot ‘result[] from’) a participant’s decision to invest in
            TIBBLE V. EDISON INTERNATIONAL                25

any particular option.” As previously noted, the DOL
expressed the same position in a notice-and-comment
rule—albeit less succinctly. The preamble to the 1992 final
rule states

       that the act of limiting or designating
       investment options which are intended to
       constitute all or part of the investment
       universe of an ERISA 404(c) plan is a
       fiduciary function which, whether achieved
       through fiduciary designation or express plan
       language, is not a direct or necessary result of
       any participant direction of such plan. Thus,
       for example, in the case of look-through
       investment vehicles, the plan fiduciary has a
       fiduciary obligation to prudently select such
       vehicles, as well as a residual fiduciary
       obligation to periodically evaluate the
       performance of such vehicles to determine,
       based on that evaluation, whether the vehicles
       should continue to be available as participant
       investment options.         Similar fiduciary
       obligations would exist in the case of an
       investment universe consisting of investment
       alternatives which are not look-through
       investment vehicles but which are specifically
       designated by plan fiduciaries.

57 Fed. Reg. at 46,924 n.27 (emphasis added). Although this
rule invokes the regulatory terms “direct and necessary,”
29 C.F.R. § 2550.404c-1(d)(2), the agency’s ability to make
the same point in its amicus brief and in the new 2010 rule
without that terminology suggests that this gloss may not be
essential. See Langbecker, 476 F.3d at 311. In our view,
26              TIBBLE V. EDISON INTERNATIONAL

though, this does not diminish the validity of its
interpretation.

     In an opinion that has been read by some to support the
no-deference view, the Third Circuit keyed in on the fact that
section 404(c) also speaks of “any loss” resulting from a
participant’s control. In re Unisys, 74 F.3d at 445.9 For a
401(k) (or for any defined-contribution plan for that matter),
it is admittedly the case that monetary damage flowing from
a fiduciary’s imprudent design of the investment menu passes
through the participant, as intermediary. But is it proper to
conclude that those losses, in the language of section 404(c),
“result from” the participant’s choice? This might seem an
odd question given that, literally speaking, there can be no
loss without the participant selecting an investment.

    But, “[i]njuries have countless causes, and not all should
give rise to legal liability.” CSX Transp., Inc. v. McBride,
131 S. Ct. 2630, 2637 (2011). Undoubtedly, in these
situations, a fiduciary’s decision to include an investment
option on the plan menu also is a cause of any participant’s
loss. Confronted with this difficulty, DOL has effectively
imported the tort-law notion of proximate cause to conclude
that the most salient cause (as between the two) is the
fiduciary’s imprudence. See id. (“What we . . . mean by the
word proximate, one noted jurist has explained, is simply
this: Because of convenience, of public policy, of a rough

 9
   Since then, that court has indicated that it may, in the appropriate case,
reconsider its decision in order to reflect the possibility that Chevron
deference is now owed to the DOL’s interpretation. Renfro v. Unisys
Corp., 671 F.3d 314, 328–29 (3d Cir. 2011); see also Langbecker,
476 F.3d at 322 (Reavley, J., dissenting) (suggesting that the earlier
Unisys case may no longer be good law); DiFelice v. U.S. Airways, Inc.,
404 F. Supp. 2d 907, 909 (E.D. Va. 2005) (same).
             TIBBLE V. EDISON INTERNATIONAL                  27

sense of justice, the law arbitrarily declines to trace a series
of events beyond a certain point.”) (omission in original)
(internal quotation marks and alteration omitted).

    We deem this “a reasonable interpretation of the statute.”
Entergy Corp., 556 U.S. at 218. ERISA “allocates liability
for plan-related misdeeds in reasonable proportion to the
respective actors’ power to control and prevent the
misdeeds.” Mertens v. Hewitt Assocs., 508 U.S. 248, 262
(1993). As compared to the beneficiary, the fiduciary is
better situated to prevent the losses that would stem from the
inclusion of unsound investment options. It can design a
prudent menu of options. Second, Chevron deference is
meant to foster “coherent and uniform construction of federal
law.” Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1495 (9th
Cir. 1997). Our acknowledgment of the flexibility inherent
in the phrase “result from” promotes this, because DOL
adopts a similar interpretation with regard to breaches
that—unlike claims of imprudent plan design—do
chronologically follow a participant’s decision. Concluding
that “a fiduciary is relieved of responsibility only for the
direct and necessary consequences of a participant’s exercise
of control,” 57 Fed. Reg. at 46,924, DOL takes the position
that errors in carrying out the investment elections of a
beneficiary give rise to liability notwithstanding that any
associated loss technically also “results from such
participant’s or beneficiary’s exercise of control.” 29 U.S.C.
§ 1104(c)(1)(A)(ii). These are just the sort of “difficult
policy choices that agencies are better equipped to make than
courts.” Brand X, 545 U.S. at 980.

    We also reject the argument raised by Edison and the
Employment Law Council that DOL’s interpretation renders
section 404(c) a meaningless provision. When certain
28             TIBBLE V. EDISON INTERNATIONAL

conditions are complied with,10 the provision safeguards
fiduciaries from being liable for participants’ substantive
investment decisions. 57 Fed. Reg. at 46,924. “The purpose
of section 404(c) is to relieve the fiduciary of responsibility
for choices made by someone beyond its control.” Howell,
633 F.3d at 567.          These include matters such as,
hypothetically, “the participant’s decision to invest 40% of
her assets in Fund A and 60% in Fund B, rather than splitting
assets somehow among four different funds, [or] emphasizing
A rather than B.” Id.

     It is, indeed, the contrary view pressed by Edison that
would render parts of the ERISA statute a nullity by making
it nearly impossible for defined-contribution-plan
beneficiaries to vindicate fiduciary imprudence. Cf. LaRue v.
DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256 (2008)
(citing the DOL’s regulations implementing section 404(c) in
rejecting the converse interpretation); see also Langbecker,
476 F.3d at 321 (Reavley, J., dissenting) (“All commentators
recognize that § 404(c) does not shift liability for a plan
fiduciary’s duty to ensure that each investment option is and
continues to be a prudent one.”).

    Because DOL’s interpretation of how the safe harbor
functions is consistent with the statutory language, we
conclude that the district court properly decided that section
404(c) did not preclude merits consideration of beneficiaries’
claims. See Tibble, 639 F. Supp. 2d at 1121.

  10
     Among these are that at least three investment options are offered,
“which constitute a broad range of investment alternatives,” and that
participants have the power to direct their investments “no less frequently
than once within any three month period.” 29 C.F.R. § 2550.404c-
1(b)(2)(ii)(C)(1).
                TIBBLE V. EDISON INTERNATIONAL              29

                                   IV

    Edison on its cross appeal raises another argument that
could waylay our analysis of beneficiaries’ substantive claims
on their appeal. It contends that the district court improperly
certified beneficiaries’ case as a class action under Federal
Rule of Civil Procedure 23.

    Rule 23 sets out four prerequisites in subsection (a). A
class must be “so numerous that joinder of all members is
impracticable,” (a)(1), there must be “questions of law or fact
common to the class,” (a)(2), “the claims or defenses of the
representative parties” must be “typical of the claims or
defenses of the class,” (a)(3), and those representatives must
“fairly and adequately protect the interests of the class,”
(a)(4). Classes must also comply with “at least one of the
requirements of Rule 23(b).” Zinser v. Accufix Research
Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001).

    For the first time on its cross appeal and relying on out-
of-circuit authority, Edison argues that this class action was
improperly certified because the claims of the representative
plaintiffs are not typical to the claims of the class at large.
See Spano v. Boeing Co., 633 F.3d 574, 586 (7th Cir. 2011)
(expounding on Rule 23(a)(3)’s “typicality requirement”). In
Spano, the court stated that “it seems that a class
representative in a defined-contribution case would at a
minimum need to have invested in the same funds as the class
members.” Id. Seizing on this statement, Edison contends
that one of the three funds successfully litigated at trial was
not held by any of the six named plaintiffs.11 This violates

 11
      The MFS Total Return fund.
30             TIBBLE V. EDISON INTERNATIONAL

Rule 23(a)(3), it claims, and requires that we reverse the class
certification order.

    Beneficiaries correctly argue that arguments not raised in
the district court ordinarily will not be considered on appeal.
Dream Palace v. Cnty. of Maricopa, 384 F.3d 990, 1005 (9th
Cir. 2004). “This rule serves to ensure that legal arguments
are considered with the benefit of a fully developed factual
record, offers appellate courts the benefit of the district
court’s prior analysis, and prevents parties from sandbagging
their opponents with new arguments on appeal.” Id. In
contrast to this typicality argument, Edison’s only Rule 23(a)
arguments below were (i) a lack of commonality because the
then-live misrepresentation claims would require
individualized proof of reliance and (ii) a failure of adequacy.
Edison concedes that it framed its argument strictly “as an
adequacy issue below” but claims that because this inquiry
can overlap with the typicality analysis, its presentation in the
lower court suffices.

    While we have indulged some liberality as to whether a
particular Rule 23(a) subdivision has been pressed,12 the
presentation must have been “raised sufficiently for the trial
court to rule on it.” In re Mercury Interactive Corp. Sec.
Litig., 618 F.3d 988, 992 (9th Cir. 2010). Here, the district
court found that “[d]efendants [did] not challenge whether the
claims of the individual plaintiffs are typical to the class.” As
to adequacy, Edison’s critique below centered on a
“contention that the named plaintiffs [were] nothing more
than ‘window dressing or puppets for class counsel’” in that

 12
    See, e.g., Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 612–13 (9th
Cir. 2010) (en banc), rev’d on other grounds by Wal-Mart Stores Inc. v.
Dukes, 131 S. Ct. 2541 (2011).
               TIBBLE V. EDISON INTERNATIONAL                          31

they were not knowledgeable about their legal claims—a far
cry from its appellate contention about these beneficiaries’
investments.13 In light of the failure to present the issue to the
district court, we expressly reserve the question of whether
the Ninth Circuit should adopt a rule akin to that articulated
in Spano, or whether the circumstances of that case would be
distinguishable from ours.14

                                    V

    We now turn to the merits of the main appeal.
Beneficiaries argue that the district court erred in granting
summary judgment to Edison on their claim that revenue
sharing between mutual funds and the administrative service
provider violated the Plan’s governing document, as well as
was a conflict of interest.

 13
    Although there are exceptions to waiver when “the issue is purely one
of law, does not affect or rely upon the factual record developed by the
parties, and will not prejudice the party against whom it is raised,” these
criteria are not satisfied. Dream Palace, 384 F.3d at 1005. Which funds
the named plaintiffs invested in is a factual issue and the beneficiaries
almost certainly would have tried their case differently (i.e., chosen
different representatives) had this issue been raised at the appropriate
stage, thus demonstrating prejudice. Janes v. Wal-Mart Stores, Inc.,
279 F.3d 883, 888 n.4 (9th Cir. 2002). Given that Edison’s Rule 23(a)
argument on appeal is new and does not fall within the recognized, but
narrow, exceptions to this form of waiver, we exercise our discretion to
decline to decide it. Dream Palace, 384 F.3d at 1005.
  14
    And since it has not even been raised on appeal, we also express no
view about whether defined-contribution plans are properly certified under
Rule 23(b)(1)(A), as the district court concluded.
32             TIBBLE V. EDISON INTERNATIONAL

                                   A

    Because ERISA requires fiduciaries to discharge their
duties “in accordance with the documents and instruments
governing the plan,” 29 U.S.C. § 1104(a)(1)(D), violations of
the written plan have been recognized as a basis for liability.
See, e.g., Cal. Ironworkers Field Pension Trust v. Loomis
Sayles & Co., 259 F.3d 1036, 1042 (9th Cir. 2001).15

     Since 1997, Plan section 19.02 has stated: “The cost of
the administration of the Plan will be paid by the Company.”
Edison contracted with Hewitt Associates, LLC, for a variety
of services, including the drafting of Plan updates and
regulatory reports. Hewitt also maintained the system by
which beneficiaries designate their contribution amounts and
make their investment elections. The addition of a large
menu of mutual funds in 1999 made the Plan more expensive
to administer, so Edison availed itself of a practice known in
the industry as revenue sharing. Under this arrangement,
mutual funds transfer a portion of their fees to the Plan’s
service provider, Hewitt. That revenue reimburses Hewitt for
its recordkeeping and other costs. In turn, Edison receives a
credit on its bills from Hewitt.

    Beneficiaries, while conceding this new practice of
revenue sharing was disclosed during the negotiations to
expand the Plan offerings, argue that the arrangement
violated the language of the Plan because it allowed Edison

  15
    See also 2 Ronald J. Cooke, ERISA Practice and Procedure § 6:10
(2012) (“Courts have consistently ruled that action inconsistent with plan
documents constitutes a breach of fiduciary duty.”). As in California
Ironworkers, we simply assume, without deciding, that beneficiaries’
theory is actionable. 259 F.3d at 1042.
             TIBBLE V. EDISON INTERNATIONAL                   33

to escape from part of the obligation to pay. With a
December 26, 2006 amendment this Plan language was
revised to state that “[t]he cost of administration of the Plan,
net of any adjustments by service providers, will be paid by
the Company.” (emphasis added). The parties agree that
under the new language these offsets are perfectly
appropriate. The issue that arises, however, is whether the
district court correctly determined that no triable issue existed
over whether the pre-amendment version of section 19.02
allowed offsets. See Fed. R. Civ. P. 56(a). At bottom, this is
a simple interpretive matter, but like most issues arising
under ERISA there are complications.

                               1

    In addition to the pension plan at issue in this case,
ERISA also governs “employee welfare benefit” plans such
as those for health or disability. See 29 U.S.C. § 1002(1)–(2).
“[T]he validity of a claim to benefits under an ERISA plan is
likely to turn on the interpretation of terms in the plan at
issue.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
115 (1989). The Supreme Court has handed down a trio of
opinions explaining the framework for review when those
disputes reach the judiciary. See Conkright, 130 S. Ct. at
1646 (discussing the Court’s two prior precedents, Firestone
and Metropolitan Life Insurance Co. v. Glenn). The proper
standard of review hinges, in part, on what the plan
instrument says about interpretation. When the plan is silent,
judges review its terms de novo. But, when the plan grants
interpretive authority to its administrator, as is usually the
case, a deferential abuse of discretion standard applies to the
administrator’s determinations.
34           TIBBLE V. EDISON INTERNATIONAL

    The Edison Plan has a provision that speaks to
interpretation; it vests the company’s Benefits Committee
with the “full discretion to construe and interpret [its] terms
and provisions.” See, e.g., Sandy v. Reliance Std. Life Ins.
Co., 222 F.3d 1202, 1206–07 & n.6 (9th Cir. 2000). The Plan
even purports to make interpretations by the Committee
“final and binding on all parties.” Taking stock of these
principles, the district court applied the abuse of discretion
standard and then concluded that Edison’s view that the
language did not foreclose revenue sharing had been
reasonable.

    Yet, as we noted at the outset, the Supreme Court
expounded these interpretive principles in the context of
“§ 1132(a)(1)(B) actions challenging denials of benefits.”
Firestone, 489 U.S. at 108. The Second Circuit has declined
to apply the arbitrary and capricious standard from Firestone
outside of the benefits context. See John Blair Commc’ns,
Inc. Profit Sharing Plan v. Telemundo Grp., Inc. Profit
Sharing Plan, 26 F.3d 360, 369–70 (2d Cir.1994). Other
circuits have read Firestone more broadly, stating that its
deference can reach beyond ERISA actions that arise under
section 1132(a)(1). See, e.g., Hunter v. Caliber Sys., Inc.,
220 F.3d 702, 711 (6th Cir. 2000) (“[W]e find no barrier to
application of the arbitrary and capricious standard in a case
such as this not involving a typical review of denial of
benefits.”); Moench v. Robertson, 62 F.3d 553, 565 (3d
Cir.1995) (“[W]e believe that after Firestone, trust law should
guide the standard of review over claims, such as those here,
not only under section 1132(a)(1)(B) but also over claims
filed pursuant to 29 U.S.C. § 1132(a)(2) based on violations
of the fiduciary duties set forth in [ERISA § 404].”).
             TIBBLE V. EDISON INTERNATIONAL                  35

     In relevant part, John Blair involved a challenge under
ERISA § 404 to how assets had been allocated. 26 F.3d at
370. The plaintiffs argued that the defendant had breached its
fiduciary duty by retaining surplus income generated by
virtue of a lag between when plan members elected to move
assets and the actual transfer of the funds. Id. at 362, 368. As
a defense, the fiduciary argued that the terms of the Plan
authorized it to allocate the assets as it had, and that because
the Plan “gave the plan committee discretion to interpret the
provisions of the [P]lan” the court was bound to approve of
its allocation unless it determined that the decision to do so
had been “arbitrary and capricious” under Firestone. Id. at
369.

    Rejecting that framework, the Second Circuit instead
decided to evaluate the claim under the “prudent person
standard articulated in § 404 of ERISA.” Id. As support for
this approach, the court cited a pre-Firestone authority from
the Third Circuit and a pair of district court decisions from
within the Second Circuit. See Struble v. N.J. Brewery Emps.
Welfare Trust Fund, 732 F.2d 325, 333–34 (3d Cir. 1984);
Ches v. Archer, 827 F. Supp. 159, 165–66 (W.D.N.Y. 1993);
Trapani v. Consol. Edison Emps.’ Mut. Aid Soc’y, Inc., 693 F.
Supp. 1509, 1515 (S.D.N.Y. 1988). Relying on John Blair
and Struble, beneficiaries argue that their claim is similarly
exempt from Firestone. We disagree.

    As noted above, this specific challenge by beneficiaries
has been brought under 29 U.S.C. § 1104(a)(1)(D), which is
part of ERISA § 404. See Tibble, 639 F. Supp. 2d at 1096
(explaining that beneficiaries “move[d] for summary
judgment on the basis that [Edison] violated the terms of the
Plan by failing to pay the full extent of Hewitt’s
recordkeeping costs”). While subsection (a)(1)(B) codifies
36              TIBBLE V. EDISON INTERNATIONAL

the statutory prudent-person standard, subsection (a)(1)(D)
simply requires that actions be in line with the plan
documents. See 29 U.S.C. § 1104(a)(1). John Blair was an
attempt by a fiduciary to escape from otherwise applicable
duties on the basis of a plan interpretation. The Second
Circuit declined to apply Firestone deference because of a
concern about bootstrapping. See John Blair, 26 F.3d at 369.
Similarly, the district court decisions it favorably cited were
examples of fiduciaries trying to weaken or evade the
statutory standard of prudence. See Ches, 827 F. Supp. at 165
(rejecting defendants’ argument that “they cannot be found to
have breached their fiduciary duties in the absence of an
allegation and a showing that their determinations had been
arbitrary and capricious”); Trapani, 693 F. Supp. at 1514
(“Defendants argue that the court must apply an arbitrary and
capricious standard, rather than the prudent man standard
specifically set forth in the statute.”).16

    Edison is not making any such argument here, as
beneficiaries have not pursued this challenge as a violation of
the prudent person standard; instead, their contention rises or

  16
     The Struble case is even farther afield; in relevant part, it did not
concern an issue of plan interpretation at all. See 732 F.2d at 331–35.
Arising during a period of lower court uncertainty about the proper
standard(s) of review under ERISA, see de Nobel v. Vitro Corp., 885 F.2d
1180, 1184–85 (4th Cir. 1989), Struble involved a claim that the employer
trustee had breached its duties of care and loyalty by “failing to collect the
amount of Employer contributions allegedly required by the Employers’
respective bargaining agreements.” 732 F.2d at 331. The Third Circuit
decided to apply “the standards set forth explicitly in ERISA” rather than
the arbitrary and capricious standard. Id. at 333.
               TIBBLE V. EDISON INTERNATIONAL                           37

falls exclusively on what Plan section 19.02 allows.17 As to
issues of plan interpretation that do not implicate ERISA’s
statutory duties, they are subject to Firestone.

    At least three considerations prompt us to hold that the
Firestone framework can govern issues of plan interpretation
even when they arise outside the benefits context. First,
while the Firestone case did not announce a holding beyond
benefits, its rationale did not stem from an interpretive gloss
on the welfare-benefits provision of ERISA. See 489 U.S. at
108, 109 (“ERISA does not set out the appropriate standard
of review for actions under § 1132(a)(1)(B) challenging
benefit eligibility determinations.”).       Instead, because
“ERISA abounds with the language and terminology of trust
law” and because of legislative history to that effect, that
body of law—not a discrete provision—dictated “the
appropriate standard of review.” Id. at 110–11 (“Trust
principles make a deferential standard of review appropriate
when a trustee exercises discretionary powers.”). The law of
trusts was the basis for the dual-track standard whereby,
absent a contrary designation, de novo review applies. See id.
at 111. The Supreme Court’s most recent analysis of
Firestone reenforces that the deference underlying that case
is a product of what trust law has to say about matters of
interpretation. See Conkright, 130 S. Ct. at 1646 (“[U]nder
trust law, the proper standard of review of a trustee’s decision
depends on the language of the instrument creating the trust.
If the trust documents give the trustee power to construe

  17
     We thus leave for another day what judicial-review standard would
apply in a case like John Blair where the Plan is said to authorize what the
statutory duties codified in ERISA forbid. Next, in Part V.B of the
opinion, we explain why these beneficiaries’ claim that revenue sharing
was a conflict of interest under ERISA § 406 fails.
38           TIBBLE V. EDISON INTERNATIONAL

disputed or doubtful terms, . . . the trustee’s interpretation
will not be disturbed if reasonable.” (alterations in original)
(internal citation and quotation marks omitted)).

    Second, one reason the Court in Conkright rejected an
exception the Second Circuit had carved out from Firestone
deference was its potential to create “uniformity problems.”
130 S. Ct. at 1650. The concern was that if de novo review
sometimes applied, fiduciaries would be in the “impossible
situation” of being subject to different plan interpretations by
courts depending on the particular facts of the cases where the
interpretive issue had arisen. Id. Not applying Firestone
deference in this case would risk similar difficulties, as parts
of a plan could be assigned one meaning when litigated under
section 1132(a)(1)(B) and another meaning when litigated,
such as here, under section 1104(a)(1)(D).

   Third, we observe that consistently applying Firestone to
the question of what a plan means, “by permitting an
employer to grant primary interpretive authority over an
ERISA plan to the plan administrator,” has the virtue of
“preserv[ing] the ‘careful balancing’ on which ERISA is
based.” Id. at 1649.          In particular, it helps keep
administrative and litigation expenses under control, which
otherwise could “discourage employers from offering
[ERISA] plans in the first place.” Id. (alteration in original).

                               2

    ERISA administrators abuse their discretion if they act
without explanation or “construe provisions of the plan in a
way that conflicts with the plain language of the plan.” Day
v. AT&T Disability Income Plan, 698 F.3d 1091, 1096 (9th
Cir. 2012). We are instructed not to disturb those
             TIBBLE V. EDISON INTERNATIONAL                 39

interpretations if they are reasonable. See Conkright, 130 S.
Ct. at 1651.

    To start with, we discern no explicit conflict with the
plain language of the Plan. See Day, 698 F.3d at 1096.
Section 19.02 required the company to pay the costs, and
Edison did. Although beneficiaries argue that the “costs” are
the expenses associated with Hewitt before the offsets, the
more natural reading is that “costs” simply are whatever bills
Hewitt presented Edison with. Under this commonsense
reading, the Plan merely assigned Edison an affirmative
obligation to pay. It did not, as beneficiaries would have it,
prohibit “Hewitt’s recordkeeping services from being paid by
a third party such as mutual funds.” That kind of
interpretation, nonsensically, would also imply that if Hewitt
had simply lowered its prices (maybe due to efficiency or
market pressure) Edison would be somehow shirking its
obligation under Plan § 19.02.

    Beyond the text, in conducting abuse of discretion review,
courts consider “various [other] criteria for determining the
reasonableness of a fiduciary’s discretionary decision.”
Booth v. Wal-Mart Stores, Inc. Assocs. Health & Welfare
Plan, 201 F.3d 335, 342 (4th Cir. 2000). Viewing the matter
in terms of those considerations further establishes the
soundness of Edison’s position. Its view is most “consistent
with the goals of the plan,” as it facilitated the expansion of
the Plan’s mutual fund offerings. Id. We also note that
section 19.02 has been applied consistently over time.
Undisputed evidence showed that the union negotiators and
Edison had “extensive discussions with regard to how
revenue sharing from the mutual funds would be used.” Also,
between 1999 when the process started, and 2006 when the
language was modified, on at least seventeen occasions
40           TIBBLE V. EDISON INTERNATIONAL

participants were specifically advised that mutual funds were
being used to reduce the cost of retaining Hewitt. For
example, one Summary Plan Description in evidence said:
“the fees received by Edison’s 401(k) plan recordkeeper are
used to reduce the recordkeeping and communication
expenses of the plan paid by the company.” Another
consideration under the abuse of discretion standard is
“whether the challenged interpretation is at odds with the
procedural and substantive requirements of ERISA itself.” de
Nobel v. Vitro Corp., 885 F.2d 1180, 1188 (4th Cir. 1989)
(citing Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th
Cir. 1984)). Although we explain the reasoning behind this
observation next, we are satisfied that revenue sharing as
carried out by Edison does not violate ERISA.

                              B

    Beneficiaries alternatively argue that the statute’s
conflicts provision, ERISA § 406(b)(3), prohibits the practice
of revenue sharing. ERISA § 406 is similar to a duty-of-
loyalty provision. See Mass. Mut. Life Ins. Co. v. Russell,
473 U.S. 134, 143 n.10 (1985). It prohibits the type of
business deals “likely to injure the pension plan.” Wright v.
Or. Metallurgical Corp., 360 F.3d 1090, 1100 (9th Cir.
2004).

                              1

     ERISA § 406(b)(3) provides that:

        A fiduciary with respect to a plan shall not
        receive any consideration for his own personal
        account from any party dealing with such plan
               TIBBLE V. EDISON INTERNATIONAL                         41

         in connection with a transaction involving the
         assets of the plan.

29 U.S.C. § 1106(b)(3). Beneficiaries’ claim is that Edison’s
revenue sharing arrangement violated this provision because
Edison received “consideration” in the form of discounts for
administrative expenses from Hewitt, which was a “party
dealing with” the Plan. The DOL, though, has issued several
non binding advisory opinions staking out the position that a
fiduciary does not violate section 406(b)(3) so long as “the
decision to invest in such funds is made by a fiduciary who is
independent” of the fiduciary receiving the fee. DOL
Advisory Op. 2003-09A, 2003 WL 21514170 (June 25,
2003); see also DOL Advisory Op. 97-15A, 1997 WL 277980
(May 22, 1997) (fiduciary that “does not exercise any
authority or control” to cause the suspect investment is not
liable).

    Relying on these concepts, the district court granted
summary judgment to Edison. To do so, it conceived of
“Edison,” not as a unified corporate entity, but in terms of its
constituent parts. In brief, the “fiduciaries” named in the Plan
include the Southern California Edison Benefits Committee
and its members, as well as the Edison International Trust
Investment Committee and its members. The “Plan Sponsor”
is Southern California Edison, while its Benefits Committee
is designated under ERISA as the “Plan Administrator.” See
29 U.S.C. § 1002(16)(A)(i), (B).18 Edison International’s
CEO appoints the Investment Committee and Southern

 18
    To the extent a Plan Sponsor has or exercises discretionary authority
in the administration or management of the Plan, ERISA deems that
sponsor a fiduciary. See Mathews v. Chevron Corp., 362 F.3d 1172, 1178
(9th Cir. 2004) (discussing 29 U.S.C. § 1002(21)(A)).
42           TIBBLE V. EDISON INTERNATIONAL

California Edison’s CEO handles appointments to the
Benefits Committee.

    In light of this diffusion of responsibility, the district
court observed that, as the sole contracting party with Hewitt,
only the subsidiary Southern California Edison had received
the credit from administrative expenses. It then noted that it
was the Investment Committee of the parent company,
Edison International, which had selected the mutual funds
that featured revenue sharing. From this, the court drew the
conclusion that a different fiduciary had received the
“consideration” than the fiduciary which had (in the DOL’s
parlance) exercised “authority or control” over the offending
investment. Therefore, the mutual fund revenue sharing had
not violated section 406(b)(3).

    As amicus curiae, the DOL vigorously objects to the
lower court’s parsing of Edison International this way, and
objects to what it considers an overly broad reading of its
advisory opinions.       DOL maintains that permitting
“fiduciaries to make plan asset investment decisions that
result in the company on which they serve as directors and
officers receiving an economic benefit from a third party is
precisely the kind of transaction—rife with the potential for
abuse—that Congress intended to prohibit in section
406(b)(3).” In response, Edison argues that the separate legal
identities of the committees and companies are meaningful,
and calls to our attention the district court’s finding that
beneficiaries had not marshaled evidence that justified
disregarding their putative separateness.

    We review the district court’s entry of summary judgment
de novo, and we are empowered to affirm on any basis the
record will support. See Gordon v. Virtumundo, Inc.,
             TIBBLE V. EDISON INTERNATIONAL                   43

575 F.3d 1040, 1047 (9th Cir. 2009). In light of that, we
reserve for another case whether the lower court’s control
determinations are defensible and, instead, proceed to
consider the basis for affirmance expressly advocated by the
DOL.

                               2

    The DOL directs our attention to its regulatory
interpretation at 29 C.F.R. § 2550.408b-2(e)(3), which states
that “[i]f a fiduciary provides services to a plan without the
receipt of compensation or other consideration (other than
reimbursement of direct expenses properly and actually
incurred in the performance of such services . . . ), the
provision of such services does not, in and of itself, constitute
an act described in section 406(b) of the Act.” Assuming that
the Edison Plan permitted revenue sharing (as we concluded
above), then as DOL explains, the discounts on its invoices
from Hewitt “would not constitute the receipt of any
‘consideration’” by Edison “within the meaning of the section
406(b)(3) prohibition.” In further support, the agency cites
one of its opinion letters that permitted, under the authority of
section 2550.408b-2(e), a fiduciary to receive reimbursement
from an unrelated mutual fund of direct expenses for which
the plan would otherwise be liable. See DOL Advisory Op.
97-19A, 1997 WL 540069 (Aug. 28, 1997).

    The district court intimated that our Patelco Credit Union
v. Sahni decision might be to the contrary. 262 F.3d 897 (9th
Cir. 2001). It is not, although we do not fault the district
court for its misconception. It did not have the advantage,
afforded us, of DOL’s participation in tackling these
regulatory intricacies. In Patelco, the fiduciary had
wrongfully deposited ERISA Plan assets—two checks
44              TIBBLE V. EDISON INTERNATIONAL

payable to the company—into his own account. Id. at 903,
908. This straightforwardly constituted “consideration for his
own personal account” from a “party dealing with [the] plan,”
in violation of ERISA § 406(b)(3). Id. at 909–10.
Confronted with that scenario, we vindicated DOL’s
pronouncement that when a fiduciary self-deals in violation
of ERISA § 406(b), the “reasonable compensation exception”
found in section 408(b)(2) cannot be used as a shield from
liability. Id. at 910–11; see also Dupree v. Prudential Ins.
Co. of Am., No. 99-8337, 2007 WL 2263892, at *42 (S.D.
Fla. Aug. 7, 2007) (explaining this).19

    By contrast in our case, section 2550.408b-2(e)(3), as it
is “routinely interpreted by the DOL,” exempts revenue
sharing payments from the very definition of consideration.
Dupree, 2007 WL 2263892, at *42. The Department’s
position is that rather than constituting “consideration,” “such
payments may be considered ‘reimbursement’ within the
meaning of regulation section 2550.408b-2(e).” DOL

  19
     ERISA § 408 grants exemptions from prohibited transactions. At
issue in Patelco was the part of that section stating “[n]othing in section
1106 of this title shall be construed to prohibit any fiduciary from . . . (2)
receiving any reasonable compensation for services rendered, or for the
reimbursement of expenses properly and actually incurred, in the
performance of his duties with the plan. . . .”
                TIBBLE V. EDISON INTERNATIONAL                            45

Advisory Op. 97-19A.20 That means it is not a section
406(b)(3) violation at all.

     Aside from citing Patelco as the lower court understood
it, beneficiaries’ only response is, in effect, that we ought to
read DOL’s regulations and opinion letters differently than
DOL has counseled in its amicus brief. We decline to do so.
Notably, courts are instructed to “defer to an agency’s
interpretation of its own regulation, advanced in a legal brief
unless that interpretation is ‘plainly erroneous or inconsistent
with the regulation.’” Chase Bank USA, N.A. v. McCoy,
131 S. Ct. 871, 880 (2011) (discussing Auer deference). We
mention this not because we resolve whether this view is
permissible either under ERISA or the regulation, but simply
to explain why beneficiaries have not convinced us to reject
DOL’s interpretation in this case.

                                     VI

   Beneficiaries next claim that Edison violated its duty of
prudence under ERISA by including several investment
vehicles in the Plan menu: (i) mutual funds, (ii) a short-term

  20
     Lest there be any doubt about the distinction between the issue in
Patelco and the issue that arises in this case, we point out that in this very
same advisory opinion the DOL also discusses the interpretation we
upheld in Patelco—thus demonstrating that the two interpretations are
compatible. Compare Advisory Op. 97-19A (“Regulation 29 C.F.R.
2550.408b-2(a) indicates that ERISA section 408(b)(2) does not contain
an exemption for an act described in section 406(b) even if such act occurs
in connection with a provision of services which is exempt under section
408(b)(2).”), with Patelco, 262 F.3d at 910 (quoting section 2550.408b-
2(a) as stating “[h]owever, section 408(b)(2) does not contain an
exemption from acts described in section 406(b)(1) of the Act . . . section
406(b)(2) of the Act . . . or section 406(b)(3) of the Act.).
46           TIBBLE V. EDISON INTERNATIONAL

investment fund akin to a money market, and (iii) a unitized
fund for employees’ investment in Edison stock.

                              A

    ERISA demands that fiduciaries act with the type of
“care, skill, prudence, and diligence under the circumstances”
not of a lay person, but of one experienced and
knowledgeable with these matters.                  29 U.S.C.
§ 1104(a)(1)(B). Fiduciaries also must act exclusively in the
interest of beneficiaries. Id. § 1104(a)(1). These obligations
are more exacting than those associated with the business
judgment rule so familiar to corporate practitioners, Howard
v. Shay, 100 F.3d 1484, 1489 (9th Cir. 1996), a standard
under which courts eschew any evaluation of “substantive
due care.” Brehm v. Eisner, 746 A.2d 244, 264 (Del. 2000),
cited in Pac. Nw. Generating Coop. v. Bonneville Power
Admin., 596 F.3d 1065, 1077 (9th Cir. 2010). To enforce this
duty of prudence, we consider the merits of the transaction
and “the thoroughness of the investigation into the merits of
the transaction.” Howard, 100 F.3d at 1488 (emphasis
added). Courts are in broad accord that engaging consultants,
even well-qualified and impartial ones, will not alone satisfy
the duty of prudence. See George v. Kraft Foods Global,
Inc., 641 F.3d 786, 799–800 (7th Cir. 2011) (collecting cases
from the Second, Fifth, Seventh, and Ninth Circuits).

    Under the common law of trusts, which helps inform
ERISA, a fiduciary “is duty-bound ‘to make such investments
and only such investments as a prudent [person] would make
of his own property having in view the preservation of the
[Plan] and the amount and regularity of the income to be
derived.’” In re Unisys., 74 F.3d at 434 (quoting Restatement
             TIBBLE V. EDISON INTERNATIONAL                 47

(Second) of Trusts § 227 (1959)) (first alternation in
original).

                              B

                              1

    A mutual fund is a pool of assets, chiefly a portfolio of
securities bought with the capital contributions of the fund’s
shareholders. Jones v. Harris Assocs. L.P., 130 S. Ct. 1418,
1422 (2010). Joined by the AARP as an amicus, beneficiaries
seek a ruling that including mutual funds of the sort available
to the investing public at large (“retail” or “brand-name”
funds) is categorically imprudent. Their position is that under
ERISA, fiduciaries must offer institutional investment
alternatives such as “commingled pools” or “separate
accounts.”

    Mutual funds, however, have a variety of unique
regulatory and transparency features that make it an apples-
to-oranges comparison to judge them against AARP and
beneficiaries’ suggested options. As Chief Judge Easterbook,
writing for the Seventh Circuit, has usefully summarized:

       A pension plan that directs participants into
       privately held trusts or commingled pools (the
       sort of vehicles that insurance companies use
       for assets under their management) lacks the
       mark-to-market benchmark provided by a
       retail mutual fund. It can be hard to tell
       whether a closed fund is doing well or poorly,
       or whether its expenses are excessive in
       relation to the benefits they provide. It can be
       hard to value the vehicle’s assets (often real
48           TIBBLE V. EDISON INTERNATIONAL

       estate rather than stock or bonds) when
       someone wants to withdraw money, and any
       error in valuation can hurt other investors.

Loomis v. Exelon Corp., 658 F.3d 667, 671–72 (7th Cir.
2011). As beneficiaries admit in their briefing, brand-name
mutual funds are generally easy to track via newspaper or
internet sources. This, in fact, was a stated goal of the report
issued by the Joint Study Group of human resource managers
and employee union representatives empaneled to expand the
Plan menu. Relatedly, as other courts have recognized, non-
mutual fund alternatives such as commingled pools are not
subject to the same “reporting, governance, and transparency
requirements” as mutual funds, which are governed by the
Securities Act of 1933 and the Investment Company Act of
1940. See Renfro v. Unisys Corp., 671 F.3d 314, 318 (3d Cir.
2011); Harris Assocs., 130 S. Ct. at 1422.

    Further, the undisputed evidence was that during
collective bargaining the union requested “forty name-brand
retail mutual funds for inclusion in the Plan.” While
conceding this, the beneficiaries claim that the union did not
know what was in its members’ best interest. Because
participant choice is the centerpiece of what ERISA envisions
for defined-contribution plans, these sorts of paternalistic
arguments have had little traction in the courts. See, e.g.,
Loomis, 658 F.3d at 673; Renfro, 671 F.3d at 327–28
(observing that imprudence is less plausible “in light of an
ERISA defined-contribution 401(k) plan having a reasonable
range of investment options with a variety of risk profiles and
fee rates”).
             TIBBLE V. EDISON INTERNATIONAL                   49

                               2

    Also before us under the mutual fund umbrella is
beneficiaries’ claim that the particular mutual funds Edison
selected charged excessive fees, which rendered their
inclusion imprudent. Part of this challenge is a broadside
against retail-class mutual funds, which do generally have
higher expense ratios than their institutional-class
counterparts. As the district court explained in its post-trial
findings of fact, this is because with institutional-class mutual
funds “the amount of assets invested is far greater than [that
associated with] the typical individual investor.” The
Seventh Circuit has repeatedly rejected the argument that a
fiduciary “should have offered only ‘wholesale’ or
‘institutional’ funds.” See Loomis, 658 F.3d at 671; Hecker,
556 F.3d at 586 (“[N]othing in ERISA requires [a] fiduciary
to scour the market to find and offer the cheapest possible
fund (which might, of course, be plagued by other
problems).”). We agree. There are simply too many relevant
considerations for a fiduciary, for that type of bright-line
approach to prudence to be tenable. Cf. Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585, 596 (8th Cir. 2009)
(acknowledging that a fiduciary might “have chosen funds
with higher fees for any number of reasons, including
potential for higher return, lower financial risk, more services
offered, or greater management flexibility”).

    Nor is the particular expense ratio range out of the
ordinary enough to make the funds imprudent. In Hecker, the
court upheld the dismissal of a similar excessive fee claim
where the range of expenses varied from .07 to 1% across a
pool of twenty mutual funds. 556 F.3d at 586. Here, the
summary-judgment facts showed that the expense ratio varied
50             TIBBLE V. EDISON INTERNATIONAL

from .03 to 2%, and there were roughly forty mutual funds to
choose from.

                                    3

    Before we leave the topic of mutual funds we find it
necessary to make one last observation. Much time at oral
argument and ink in the briefs were devoted to debating the
question of whether the revenue sharing typically associated
with mutual funds adversely impacts plan beneficiaries.
Today we have held that the practice here did not violate the
terms of the Edison Plan or violate ERISA § 406(b)(3).

     Mutual funds generate this revenue by charging what is
known as a Rule 12b-1 fee to all investors participating in the
fund.21 Edison takes the position that because that fee applies
to Plan beneficiaries and all other fund investors alike, the
allocation of a portion of that total 12b-1 fee to Hewitt is
irrelevant. As it put the matter at oral argument: “the mutual
fund advisor can do whatever it wants with the fees;
sometimes they share costs with service providers who assist
them in providing service and sometimes they don’t.” This
benign-effect, of course, assumes that the “cost” of revenue
sharing is not driving up the fund’s total 12b-1 fee and, in
turn, its overall expense ratio. It also assumes that fiduciaries
are not being driven to select funds because they offer them
the financial benefit of revenue sharing. The former was not

 21
    See Meyer v. Oppenheimer Mgmt. Corp., 895 F.2d 861, 863 (2d Cir.
1990) (“Promulgated in 1980, [U.S. Securities and Exchange
Commission] Rule 12b-1 permits an open-end investment company to use
fund assets to cover sale and distribution expenses pursuant to a written
plan approved by a majority of the fund’s board of directors . . . and a
majority of the fund’s outstanding voting shares. . . . Prior to this Rule,
brokers had to bear these expenses themselves.”).
                TIBBLE V. EDISON INTERNATIONAL                            51

explored in this case and the evidence did not bear out the
latter,22 but we do not wish to be understood as ruling out the
possibility that liability might—on a different record—attach
on either of these bases.

                                     C

    The next contention can be addressed briefly.
Beneficiaries argue that it was imprudent for Edison to
include a short-term investment fund (or “STIF”) rather than
a stable value fund. Both types of investments are
conservative in that they emphasize capital preservation
rather than the maximization of returns. A stable value fund
generally consists of short-to-medium duration bonds paired
with insurance contracts that guard against interest rate
volatility, and the record here indicates that beneficiaries are
correct that they typically outperform money market funds.
A STIF is similar to a traditional money market fund, which
invests in what might be loosely termed “money,”
instruments such as “short-term securities of the United
States Government or its agencies, bank certificates of
deposit, and commercial paper.” Harris Assocs., 130 S. Ct.
at 1426 n.6. The regulatory regime is different for the two
instruments however: registered money markets must comply
with the Investment Company Act, whereas banking
regulations set the rules of the road for STIFs.

    When applying the prudence rule in section
1104(a)(1)(B), “the primary question is whether the
fiduciaries, at the time they engaged in the challenged

 22
    In fact, the district court found that “in 33 of 39 instances, the changes
to the mutual funds in the Plan evidenced either a decrease or no net
change in the revenue sharing received by the Plan.”
52           TIBBLE V. EDISON INTERNATIONAL

transactions, employed the appropriate methods to investigate
the merits of the investment and to structure the investment.”
Cal. Ironworkers, 259 F.3d at 1043 (internal quotation marks
omitted). Thus, fatal to beneficiaries is uncontroverted
evidence that there were discussions about the pros and cons
of a stable-value alternative. Furthermore, an investment
staffer testified at his deposition that in 1999 his team
determined that a short-duration bond fund already on the
menu filled the same investment niche as would have a stable
value fund.

                               D

    Beneficiaries also charge that the inclusion of the unitized
stock investment was imprudent, despite it being an industry
standard for large 401(k)’s. Their main contention is that
during the class period a roughly 77% gain in Edison’s stock
price yielded Plan investors only around a 67% return. But
hindsight is the wrong metric for evaluating fiduciary duty.
See Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 918
(8th Cir. 1994); DiFelice, 497 F.3d at 424.

    This dilution, or “investment drag,” that occurs when
stock prices rise as compared to a direct stock investment is
a well-recognized characteristic of unitized funds. The
reason they are called “unitized” is that participants own units
of a fund that invests primarily in company stock, but also in
“cash and other similar highly liquid investments.” George,
641 F.3d at 792. These non-stock portions of the unitized
fund generate lower rates of return than does the stock. Why
use the device then? The advantages are twofold. The cash-
buffer gives investors increased liquidity. See id. at 793
(explaining that money can be dispersed without delay
because sales of units are paid out from the cash). Also, “in
             TIBBLE V. EDISON INTERNATIONAL                   53

a market in which the relevant stock is declining, the presence
of cash in the fund would be a good thing” because it
functions as a hedge. Id.

    Citing George, beneficiaries correctly note that, there, the
court withheld summary judgment because there was a
genuine issue of material fact as to whether the fiduciary had
considered “implementing changes to the [fund] in order to
reduce or eliminate investment and transactional drag.” Id.
at 796 n.8. Yet, by contrast, the district court here found
vigilance on the part of the Edison Investment Committee to
minimize this phenomenon. “For example, in July 2004, the
issue of how much cash should be held in the Edison Stock
Fund was raised.” Because active trading had decreased, the
decision was made to reduce the cash target. See Taylor v.
United Techs. Corp., No. 3:06-CV-1494, 2009 WL 535779,
at *9 (D. Conn. 2009) (“The evidence indicates that UTC’s
evaluation of the merits of retaining cash to provide
transactional liquidity satisfies the prudent person standard.”).
Because the choice to include unitization was objectively
reasonable as well as informed, and because the evidence
establishes that Edison oversaw the fund as conditions
changed, we agree that summary judgment was proper.

                              VII

    Continuing with our application of the prudence standard,
we confront the final issue in the case: Edison’s argument on
cross appeal that the district court erred in concluding—after
a three-day bench trial and months of post-trial evidence and
briefing—that the company had been imprudent in deciding
to include retail-class shares of three specific mutual funds in
54              TIBBLE V. EDISON INTERNATIONAL

the Plan menu.23 The basis of liability was not the mere
inclusion of retail-class shares, as the court had rejected that
claim on summary judgment. Instead, beneficiaries prevailed
on a theory that Edison has failed to investigate the
possibility of institutional-share class alternatives.

                                     A

    In reviewing a judgment after a bench trial, we evaluate
the district court’s factual findings “for clear error and its
legal conclusions de novo.” Lee v. W. Coast Life Ins. Co.,
688 F.3d 1004, 1009 (9th Cir. 2012).

    Here, the lower court’s unchallenged findings are that
during the relevant time period (i) all three funds offered
institutional options in which the Edison 401(k) Savings Plan
almost certainly could have participated,24 (ii) those options
were in the range of 24 to 40 basis points cheaper than the
retail class options the Plan did include, and—crucially—(iii)
between the class profiles, there were no salient differences
in the investment quality or management.

  23
     They were the William Blair Small Cap Growth Fund, the PIMCO
(Allianz) RCM Global Technology Fund, and the MFS Total Return Fund.
As mentioned earlier, other retail funds for which the initial decision to
invest was time-barred were litigated (unsuccessfully) under a theory that
Edison breached its duties by not converting them into institutional shares
upon the occurrence of “triggering events” after August 16, 2001.
 24
    Although the funds advertised investment minimums, the district court
amply documented that it is common knowledge in the financial industry
that these will be waived for “large 401(k) plans with over a billion dollars
in total assets, such as Edison’s.” In fact, defendants’ own expert witness
had “personally obtained such waivers for plans as small as $50 million
in total assests—i.e, 5 percent the size of the Edison plan.”
               TIBBLE V. EDISON INTERNATIONAL                          55

                                    B

    Since at least 1999, Edison has contracted with Hewitt
Financial Services (“HFS”)25 for investment consulting
advice. It argued below, and re-urges here, that it reasonably
depended on HFS for advice about which mutual fund share
classes should be selected for the Plan.

    HFS frequently engages with the Investment Committee
staff at Edison to help design and manage the Plan menu. It
applies the investment staff’s criteria: (1) fund
stability/management, (2) diversification, (3) performance
relative to benchmarks, (4) expense ratio relative to the peer
group, and (5) the accessibility of public information on the
fund. HFS then approaches the Committee with options and
discusses their respective merit with its members. And to
keep Edison abreast of developments, it provides the
Committee with monthly, quarterly, and annual investment
reports. We offer this background to illustrate a point, which,
though it should be unmistakable, seems to have eluded
Edison in its briefing. HFS is its consultant, not the fiduciary.
“As Judge Friendly has explained, independent expert advice
is not a ‘whitewash.’” Shay, 100 F.3d at 1489 (quoting
Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cir. 1982)).
Our Shay factors recognize this by not simply requiring that
the fiduciary (1) probe the expert’s qualifications, and (2)
furnish the expert with reliable and complete information, but
also requiring it to “(3) make certain that reliance on the

 25
    HFS is an affiliate of the Plan’s services provider, Hewitt Associates.
Their respective roles are separate and distinct.
56            TIBBLE V. EDISON INTERNATIONAL

expert’s advice is          reasonably justified under             the
circumstances.” Id.26

     Applying Shay, the district court found that Edison failed
to satisfy element (3)—reasonable reliance. We agree. Just
as fiduciaries cannot blindly rely on counsel, Donovan v.
Mazzola, 716 F.2d 1226, 1234 (9th Cir. 1983), or on credit
rating agencies, Bussian, 223 F.3d at 301, a firm in Edison’s
position cannot reflexively and uncritically adopt investment
recommendations. See In re Unisys, 74 F.3d at 435–36
(“[W]e believe that ERISA’s duty to investigate requires
fiduciaries to review the data a consultant gathers, to assess
its significance and to supplement it where necessary.”);
Shay, 100 F.3d at 1490 (fiduciaries should “make an honest,
objective effort” to grapple with the advice given and, if need
be, “question the methods and assumptions that do not make
sense”). The trial evidence—from both beneficiaries’ and
Edison’s own experts—shows that an experienced investor
would have reviewed all available share classes and the
relative costs of each when selecting a mutual fund. The
district court found an utter absence of evidence that Edison
considered the possibility of institutional classes for the funds
litigated—a startling fact considering that supposedly the
“expense ratio” was a core investment criterion.

   However, because the “goal is not to duplicate the
expert’s analysis,” had Edison made a showing that HFS
engaged in a prudent process in considering share classes this
might have been a different case. Bussian, 223 F.3d at 301.
But despite having ample opportunities, Edison “did not

  26
    This framework has been followed by our sister circuits. See, e.g.,
Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 301 (5th Cir. 2000);
Hightshue v. AIG Life Ins. Co., 135 F.3d 1144, 1148 (7th Cir. 1998).
             TIBBLE V. EDISON INTERNATIONAL                  57

present evidence of: the specific recommendations HFS made
to the Investments Staff regarding those funds, what the scope
of HFS’s review was, whether HFS considered both the retail
and institutional share classes” or what questions or “steps the
Investments Staff [pursued] to evaluate HFS’
recommendations.”

    On this record we have little difficulty agreeing with the
district court that Edison did not exercise the “care, skill,
prudence, and diligence under the circumstances” that ERISA
demands in the selection of these retail mutual funds.
29 U.S.C. § 1104(a)(1)(B). Its cross appeal thus fails.

                             VIII

    For the foregoing reasons, the judgment of the district
court is AFFIRMED. The parties shall bear their own costs
on appeal.