On May 18, 2015, the United States Supreme Court, in a unanimous decision, held that an ERISA fiduciary responsible for the selection of ERISA plan investment choices has an ongoing duty to monitor such choices.
As discussed in greater detail in our May 18th Benefits Law Advisor post, Tibble v. Edison International, No. 13-550 (U.S. May 18, 2015) involved a plan’s selection of six mutual funds offered as plan investment options. Three of the funds were selected in 1999 and three were chosen in 2002. All were so-called “retail class” funds that were identical (other than carrying higher fees) to other available “institutional class” funds with lower expenses (and consequently higher returns). The plaintiffs argued that the selection of the costlier funds, where identical lower-cost funds were available, was a breach of fiduciary duty under ERISA.
The principal legal issue in the case was whether, since the selection decision was made more than 6 years after the action was commenced, the claims were barred by ERISA’s 6-year statute of limitations. The United States District Court for the Central District of California dismissed the claims as time-barred, and the Ninth Circuit affirmed, based on Ninth Circuit precedent holding that there is no “continuing violation” theory under ERISA.
In a rare unanimous ERISA decision, the Supreme Court reversed. The Court held that ERISA fiduciary duty “is derived from the common law of trusts,” that at common law a trustee had a continuing duty “to monitor, and remove, imprudent investments,” and that, as a result, an ERISA fiduciary has a continuing duty to monitor investments that “exists separate and apart from the trustee’s duty to exercise prudence in selecting investments.”
Tibble is unremarkable in that it broke no new ground; the ongoing “duty to monitor” has been long-recognized by both fiduciaries and attorneys alike. The principle take-away from Tibble is the reiteration of risk mitigation best practices for fiduciaries tasked with the selection of investment options for an ERISA plan.
At minimum, these best practices should include:
- Establishing a 401(k) investment committee comprised of members both willing and able to fully understand the roles and responsibilities of the position and educated on the basics of ERISA fiduciary responsibility, plan procedures, investment review guidelines, and plan documents.
- Establishing and adhering to procedures for the selection and periodic review of investment choices. These procedures are generally set forth in an “investment policy statement” which includes suggested guidelines for both initial selection and monitoring of investment alternatives.
- Holding regularly-scheduled committee meetings, generally quarterly.
- Regularly reviewing of the fees associated with investment choices and other service providers (such as record keepers), including compliance with the Department of Labor’s fee disclosure requirements.
- Perhaps most importantly, clearly and thoroughly documenting, via committee meeting minutes, both the decisions resultant from the investment committee’s periodic review and the empirical rationale for such decisions.