Today, the U.S. Supreme Court announced a much-anticipated ERISA plan decision in the case of Tibble v. Edison International. ERISA practitioners and plan administrators have been watching Tibble with interest because the Supreme Court granted certiorari to consider a very broad question – namely, whether ERISA’s six-year limitations period barred imprudent investment claims where the initial investment decision was more than six years prior to suit. At only ten pages, the decision side-stepped a comprehensive discussion of numerous subsidiary questions, such as whether ERISA recognizes a “continuing violation” theory. Instead, the Court remanded the decision on the narrow ground that the Ninth Circuit had not given adequate consideration to whether fiduciaries breached a duty to monitor those investments within the six years prior to suit.

BACKGROUND

Edison International (“Edison”) is a holding company for a number of electric utilities and other energy interests, and it provided a 401(k) plan serving 20,000 employees that was valued at $3.8 billion during the litigation.[1] Under Edison’s plan, employees had a menu of possible investment options which included “institutional or commingled pools, forty mutual fund-type investments, and indirect investment in Edison stock known as a unitized fund.”[2]

The Tibble plaintiffs, on behalf of current and former 401(k) plan beneficiaries, claimed that Edison violated ERISA’s fiduciary duty of prudence by offering more expensive “retail class” shares of mutual funds, instead of relatively cheaper “institutional class” shares of the same funds.[3] The three funds challenged in the Supreme Court appeal were added in 1999 (“the 1999 funds”); but suit was not filed until 2007. Three other funds were selected in 2002 (“the 2002 funds”), but were not before the Supreme Court since they were offered less than six years before the plaintiffs’ lawsuit.

The district court held that the fiduciaries had acted imprudently by selecting the 2002 funds, noting there was no basis for selecting the more expensive retail-class shares, instead of the cheaper, virtually identical institutional shares. However, the district court found the same claims regarding the 1999 funds were barred by ERISA’s six-year limitations period.[4]

On appeal to the Ninth Circuit Court of Appeals, the plaintiffs asserted that their claims were timely so long as the 1999 funds remained in the plan. In an amicus filing, the Department of Labor (“DOL”) argued in favor of a “continuing violation” exception to the six-year period, positing that ERISA fiduciaries would otherwise have no incentive to remove imprudent investments from plan offerings.

The Ninth Circuit rejected the continuing-violation arguments, holding that the “act of the designating the investment for inclusion” triggers the limitations period absent evidence that “changed circumstances” gave rise to a new duty to conduct a “full diligence review” of existing funds.[5] The Ninth Circuit reasoned that the “changed circumstances” approach was necessary to give meaning to ERISA’s six-year limitations period, noting that a contrary view could expose fiduciaries to liability for a protracted and indefinite period.

THE SUPREME COURT’S DECISION

When it granted certiorari, the Court framed the “Question Presented” broadly:

Whether a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by 29 U. S. C. §1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.

In doing so, the Court did not signal whether it would address the continuing-violation theory espoused by plaintiffs, or the policy concerns underpinning the Ninth Circuit’s decision.

The Supreme Court bypassed these issues, however. Instead, it vacated the Ninth Circuit’s ruling, and remanded for additional consideration of the fiduciaries’ ongoing duty to monitor the prudence of the 1999 funds. The Court couched its decision in traditional trust law, which requires a “regular review” of trust investments. The Court also found support in the Uniform Prudent Investor Act, which the Court viewed as embracing a continuing duty to monitor plan investments.

ANALYSIS

The Supreme Court’s Tibble decision was unusually concise, and thus did not offer any express guidance to lower courts or practitioners on whether, for instance, ERISA recognizes a continuing-violation exception to a limitations defense. Given that the Court emphasized a wholly separate duty applicable to investment practices – i.e., a well-established duty to monitor investments – it does appear that the Court opted not to recognize any continuing-violation doctrine. Similarly, given the Court’s focus on the Uniform Prudent Investors Act, the application of Tibble should be limited to imprudent-investment claims, where there is a clearly established, ongoing duty to monitor, or at least those species of fiduciary claims where there is recognized duty of an ongoing nature.

Beyond that, the reach of Tibble may be fairly short because the Supreme Court expressly declined to address the scope of the fiduciary’s ongoing duties. Indeed, the Court did not provide guidance on how to evaluate those duties, except to hold that “changed circumstances” (that is, circumstances that would render an otherwise-prudent investment imprudent) was not the only scenario in which a fiduciary’s failure to re-evaluate investments might run afoul of ERISA. The Court also left open the possibility that the Ninth Circuit could deem the ongoing-duty claims waived, if it finds that they were not adequately preserved in the earlier appeal.

Nevertheless, plan administrators should keep an eye on the proceedings on remand, to see how the Ninth Circuit’s decision applies ERISA’s monitoring duty to defendants’ retention of the 1999 funds in the Edison plan. Although periodic re-evaluation of all plan investments is already a “best practice,” the decision on remand may offer guidance on particular circumstances that call for fiduciary scrutiny of specific investments.