In a unanimous opinion, the Supreme Court ruled that 401(k) benefit plan fiduciaries have a continuing duty to monitor investments offered to employees under the plan. The Court rested its decision on traditional trust law, which requires a “regular review” of trust investments, and the Uniform Prudent Investor Act, which it viewed as embracing a continuing duty to monitor plan investments. Tibble v. Edison International, No. 13-550 (May 18, 2015).
In the litigation, current and former 401(k) plan beneficiaries claimed the employer had 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. The three funds challenged in the Supreme Court appeal were added in 1999, but suit was not filed until 2007.
The Employee Retirement Income Security Act has a six-year limitations period for filing claims. In deciding to hear the case, the Court framed the issue broadly, but did not signal whether it would address the continuing-violation theory advocated by the plaintiffs or certain policy concerns emphasized by the U.S. Court of Appeals for the Ninth Circuit in its opinion in the matter. Finding a continuing duty to monitor the investments, the Court sent the case back to the Ninth Circuit to decide whether plan fiduciaries breached a duty to monitor those investments within the six years prior to suit.
For more on this decision, see “ERISA Fiduciaries Have Ongoing Duty to Monitor Trust Investments” at www.jacksonlewis.com.
Employee benefits practitioners and plan administrators had eagerly anticipated the Court’s decision on whether the ERISA’s limitations period barred claims over imprudent investment decisions initially made more than six years prior to suit. The decision side-steps a comprehensive discussion of numerous subsidiary questions, including whether ERISA recognizes a “continuing violation” theory.
Plan administrators should keep an eye on the remanded proceedings to see how the Ninth Circuit applies ERISA’s monitoring duty to defendants’ retention of the 1999 funds in the 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