The United States Supreme Court unanimously ruled in Tibble v. Edison Int’l that a suit alleging a breach of fiduciary duty for failure to properly monitor investment options in a 401(k) plan was not time-barred because it was brought more than six years after the investment options in question were added to the plan. The Employee Retirement Income Security Act of 1974 (ERISA) contains a six-year statute of limitations with respect to suits alleging breaches of fiduciary duty. The Court stated in its decision that, under trust law, a fiduciary generally has a continuing duty to monitor investment options and remove imprudent ones. The Court held that a lawsuit alleging fiduciary breach is not time-barred so long as the alleged breach occurred within six years of the suit’s filing (even if more than six years have passed since the investment option was added to the plan). The Court, however, did not articulate the scope of a plan fiduciary’s continuing duty to monitor plan investments, leaving this question for lower courts.
The Court’s ruling in Tibble overturned a Ninth Circuit ruling that rejected the suit as time-barred, because it was brought more than six years after the investment options in question were added to the plan. Other federal circuits, including the Fourth and Eleventh Circuits, had issued rulings similar to the Ninth Circuit.
Although the decision in Tibble is not surprising, it may make it easier for plaintiffs to bring fiduciary breach claims related to plan fiduciaries’ monitoring of (or failure to monitor) investment options that were first added to a defined contribution plan many years prior, based on the theory that the fiduciaries failed to adequately monitor the investment options after the options were initially selected.
Aside from the potential for more litigation activity generally, the practical impact of the Tibble decision on plan fiduciaries depends largely on how involved and active the fiduciary is today. Sophisticated plan fiduciaries that have a formal fiduciary governance structure in place that select and regularly monitor plan investment options with the assistance of expert investment and other professionals, and that thoroughly document their selection and monitoring process may not be materially impacted by this decision. Although lower courts and plaintiffs may interpret Tibble to somehow add to the sophisticated plan fiduciary’s obligation to continually monitor plan investments, the Supreme Court’s decision does not on its face alter the monitoring requirement that ERISA already imposes on fiduciaries.
On the other hand, the decision is a loud wake up call for defined contribution plan sponsors that do not have a formal fiduciary governance structure in place. Plan sponsors and fiduciaries that do not regularly monitor investment options in their plans or that do not properly document their monitoring activities with the assistance of experts should strongly consider a more active approach to plan governance in response to the Tibble decision.