On May 18, 2015, the United States Supreme Court unanimously held in Tibble v. Edison International that in addition to the fiduciary duty to exercise prudence when initially selecting a plan’s investment options, a fiduciary also has a separate continuing duty to prudently monitor investments and remove imprudent ones.
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), provides that an ERISA fiduciary must discharge his responsibility with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use. A breach of fiduciary duty complaint under ERISA is timely if filed no more than six years after (1) the date of the last action which constituted a part of the breach or violation; or (2) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.
In Tibble v. Edison, beneficiaries of the Edison 401(k) Savings Plan (the “Plan”) filed a lawsuit in 2007 against Edison International, and Plan fiduciaries to recover damages for alleged losses suffered by the Plan due to breaches of their fiduciary duties. The beneficiaries argued that the fiduciaries violated their fiduciary duties with respect to three mutual funds added to the Plan in 1999 and three mutual funds added to the Plan in 2002.
With regard to these mutual funds, the beneficiaries claimed that the fiduciaries acted imprudently by offering six higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional class mutual funds were available to institutional investors, such as the Plan. A lower priced mutual fund reflects a lower administrative cost to a plan participant, which results in a plan participant having more value in his account under his retirement plan.
The district court agreed with the beneficiaries as to the three funds added to the Plan in 2002, but held that the three mutual funds added to the Plan in 1999 were time barred by the 6-year statute of limitations because these mutual funds were included in the Plan more than six years before the complaint was filed in 2007.
On appeal, the Court of Appeals for the Ninth Circuit affirmed the district court’s ruling holding that the beneficiaries’ claims were untimely because they had not established a change in circumstances that might trigger an obligation to conduct a full due diligence review and to change investments within the 6-year limitations period.
On review, the Supreme Court found that the Ninth Circuit erred by applying the 6-year limitations period solely on the initial selection of the three mutual funds in 1999 without considering the contours of the alleged breach of fiduciary duty. Applying trust law principles, the Court noted that a fiduciary has a continuing duty to monitor investments and remove imprudent ones, and that this continuing duty exists separate and apart from the fiduciary’s initial duty to exercise prudence in selecting investments. Accordingly, the Court held that so long as the alleged breach of the continuing duty occurred within six years of the lawsuit, the claim is timely. The Court returned the case to the Ninth Circuit to consider whether the petitioners’ claims were within the relevant 6-year statutory period.
While the Court did not provide any additional guidance regarding the scope of the fiduciary duty to continue to monitor investments and remove imprudent ones, it is now clear that ERISA fiduciaries have a continuing duty to prudently monitor investments and remove imprudent ones.