Plan Sponsor e.Brief | May 2015
In the Tibble v. Edison International appeal to the Supreme Court of the United States, the Court was asked to determine the applicability of the six-year statute of limitations afforded under ERISA law as it applies to the ability to bring a breach-of-fiduciary-duty claim related to the selection of plan investment options.
In the original case filed in 2007, the plan fiduciary committee was sued for imprudently offering retail share classes of mutual funds in a large 401(k) plan that could have used less-expensive institutional share classes of those same investments. The district court found plan fiduciaries liable for the extra costs of the retail funds that were added to the plan’s investment menu in 2002. It concluded that Edison did not offer any credible explanation for using retail share class options for those three funds. The court dismissed three other retail share class funds added to the menu in 1999 from consideration, citing ERISA’s six-year statute of limitations. Upon appeal, the Ninth Circuit Court of Appeals agreed with the district court’s application of the six-year statute of limitations.
The Supreme Court held that “ERISA’s fiduciary duty is ‘derived from the common law of trusts,’… which provides that a trustee has a continuing duty—separate and apart from the duty to exercise prudence in selecting investments at the outset—to monitor, and remove imprudent trust investments. So long as a plaintiff’s claim alleging breach of the continuing duty of prudence occurred within six years of bringing litigation, the claim is timely.”
The Supreme Court remanded the case back to the Ninth Circuit Court of Appeals to consider the claims that Edison breached its duties within the six-year statutory period recognizing this trust law, which suggests that fiduciaries are required to conduct a “regular review of its investment with the nature and timing of the review contingent on the circumstances.” The Supreme Court was silent as to what exactly that duty to monitor might look like. The Ninth Circuit will now hear arguments to determine if Edison breached its duties within the relevant six-year statutory period recognizing the importance of the trust law.
Plan sponsors should take the following away from this ruling:
- ERISA fiduciaries have a continuing duty to review the investments in the plans for which they are responsible. Their responsibility does not end upon the selection of the investments.
- What that review should include will ultimately be what the prudent experts in the field say it should be. This is a determination the Ninth Circuit Court of Appeals will have to make as it takes the case back up.
Read the 10-page decision here.