The Supreme Court – presented with a simple question about ERISA’s fiduciary-duty statute of limitations (29 U. S. C. § 1113) – lays the foundation for a potential new round of litigation about how strictly and often plan fiduciaries must monitor the performance of their retirement investment plans. The Court, without dissent, agrees that There is no set-it-and-forget-it rule for fiduciaries.
Tibble v. Edison Int’l, No. 13-550 (U.S. May 18, 2015): ERISA generally has no limitations periods (they are instead borrowed from state law), except for claims of breach of fiduciary duty. For the “fiduciary’s breach of any responsibility, duty, or obligation,” a complaint is timely only if filed (1) no more than six years after “the date of the last action which constituted a part of the breach or violation”; or (2) “in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.” 29 U.S.C. §1113.
In this case, the claim concerned a 401(k) plan operated by Edison Int’l. “Petitioners argued that respondents acted imprudently by offering six higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available (the lower price reflects lower administrative costs).” The fiduciaries argued that any claim of imprudence was triggered on the date they approved the funds, while the participants argued that a claim for failure to monitor continued after that date. The Ninth Circuit agreed with the fiduciaries, and because the funds were added in 1999 (three funds) and 2002 (three funds), only claims concerning the latter funds were timely.
The Supreme Court, in a terse eight pages, reverses. The Ninth Circuit erred, holds the Court, “by applying a statutory bar to a claim of a ‘breach or violation’ of a fiduciary duty without considering the nature of the fiduciary duty.” The alleged sin was not in the original selection of the funds, but in their failure to “conduct a regular review of [their] investment,” the “nature and timing” of which the Court holds is “contingent on the circumstances.”
Applying the principles of trust law, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones” that is separate “from the trustee’s duty to exercise prudence in selecting investments at the outset.” While trust law does not prescribe rules for monitoring, the authorities consistently underscore that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.”
Accordingly, holds the Court, “[a] plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.”
The Court left open whether the duty to monitor “require[d] a review of the contested mutual funds here, and … what kind of review … it require[d]”? And so the litigation will now refocus on how often plan fiduciaries must reopen the books. So employees who see their 401(k) retirement savings eroding away due to heavy fees and a lack of suitable investment vehicles may have a claim against the fiduciaries irrespective of how long they’ve participated.