Last November, we reported that the Supreme Court had granted certiorari in Tibble v. Edison International, a Ninth Circuit decision holding that a claim that a plan fiduciary breached its duty of prudence in selecting plan investments was barred when, absent changed circumstances, the fiduciary initially chose the investments more than six years before the claim was filed.1 The Supreme Court in May 2015 issued its decision, looking to principles of trust law and vacating and remanding the Ninth Circuit's ruling. The Court stated that it believes the Ninth Circuit erred by applying the statutory bar to a fiduciary duty breach claim without considering the nature of the fiduciary duty. The Supreme Court said that the Ninth Circuit failed to recognize that under trust law a fiduciary is required to conduct a regular review of its investments with the nature and timing of the review contingent on the circumstances.
The plaintiffs in Tibble are participants in a nearly $4 billion 401(k) plan which offers a "menu" of possible investment options, including certain "retail class" mutual funds similar to those offered to the general public. Retail class funds typically have higher administrative fees than alternatives available only to institutional investors. The participants alleged in relevant part that inclusion of the higher-fee retail class funds had been imprudent when lower-fee institutional class funds had been available.
Lower Court Opinions
The District Court granted summary judgment to the employer on this issue, holding that the ERISA2 statute of limitations barred recovery for claims arising out of investments included in the plan more than six years before the participants filed suit. The District Court concluded that the participants had not met their burden of showing that a prudent fiduciary would have undertaken a full due-diligence review of the funds as a result of "changed circumstances." According to the District Court, the circumstances had not changed enough to place the employer under an obligation to review the mutual funds and to convert them to lower priced institutional class mutual funds.
The Ninth Circuit agreed that the participants' claim was untimely because they had not established a change in circumstances that might trigger an obligation to review and to change investments within the six year statutory period.
The Solicitor General's Views
The Solicitor General filed an amicus brief with the Supreme Court on behalf of the United States in connection with the case. The Solicitor General argued that the Ninth Circuit erred in concluding that the participants' claim was time-barred because plan fiduciaries have a continuing duty to review plan investments and eliminate imprudent ones. The Solicitor General noted that under the Ninth Circuit's rule, fiduciaries would have no incentive to monitor and update plan investments, and they could retain imprudent investment options forever (absent changed circumstances) once the investment options had been available for more than six years. The Solicitor General also noted that the courts of appeals were in disagreement on this question.3
The Supreme Court's Decision
As noted above, the Supreme Court stated that it believes the Ninth Circuit erred by applying a statutory bar to a fiduciary duty breach claim without considering the nature of the fiduciary duty, and that the Ninth Circuit failed to recognize that under trust law a fiduciary is required to conduct a regular review of its investments with the nature and timing of the review contingent on the circumstances. The Court explained that a participant may allege that a plan fiduciary breached the duty of prudence by failing to properly monitor plan 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.
What This Means for Plan Fiduciaries
The Supreme Court's decision in Tibble reinforces that ERISA fiduciaries have a continuing duty to monitor plan investments and remove imprudent ones. Thus, plan fiduciaries should establish and follow a well-documented plan investment monitoring program.