Section 413 of ERISA provides in general that no action for breach of fiduciary duty may be brought after the earlier of: (1) six years after (A) the date of the last action which constituted a part of the breach, or (B) in the case of an omission 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. The Supreme Court heard oral argument this week on whether the Ninth Circuit correctly held in Tibble v. Edison Int’l, 729 F.3d 1110 (9th Cir. 2013), that a challenge to a fiduciary investment decision made more than six years before suit is filed is barred by Section 413 absent changed circumstances within the limitations period.

Plaintiffs in Tibble are participants in their employer’s participant-directed 401(k) plan. They claim that plan fiduciaries had an ongoing duty to monitor 401(k) investment options and, as part of that monitoring process, should have discovered that the plan could have offered lower-cost institutional shares instead of the more expensive option previously selected.

During the argument, the justices, the parties to the suit, and the Department of Labor all seemed to agree on the following points:

  • There is no “continuing violation” as to a fiduciary decision to offer an imprudent investment as an investment option. The ERISA statute of limitations begins to run from the date of the alleged fiduciary breach in making that decision.
  • There is an ongoing fiduciary duty to monitor investment options prudently.
  • The process of “monitoring” investments is less intensive and rigorous than the process of initial selection of investment options.
  • If the Supreme Court finds there must be some significant event or change in order to trigger reexamination of an investment, then it should affirm the Ninth Circuit’s decision.

The parties disagreed as to whether the Ninth Circuit properly considered the duty to monitor and whether plaintiffs produced evidence in the district court of a failure to monitor. There did not seem to be much support for the notion that “changed circumstances” were required to invoke the duty to monitor.

The justices did not seem inclined to spell out what was required in the duty to monitor, other than the normal fiduciary standard of prudence under the circumstances. This suggests we might see a remand to the lower courts to develop a proper record and decision on whether the plan fiduciaries properly monitored the investment during the limitations period.