On May 18, 2015, the Supreme Court of the United States rendered a much anticipated (by ERISA attorneys, at least) decision in Tibble v. Edison International, clarifying a relatively narrow but still significant issue involving fiduciary responsibilities and retirement plan investments. Tibble v. Edison International, No. 13–550, Supreme Court of the United States (May 18, 2015).

Tibble is one of a number of “401(k) fee and cost” cases brought in recent years against large employers with substantial defined contribution retirement plans alleging various violations of the fiduciary duty requirements imposed by the Employee Retirement I come Security Act of 1974, as amended (ERISA). Although the case originally implicated a litany of claims against the plan fiduciaries, the lower courts mostly resolved those claims in favor of the fiduciaries, leaving only a narrow issue involving ERISA’s statute of limitations for consideration by the Court. After the conclusion of oral arguments in the case in February 2015, many Court observers wondered whether there was more smoke than fire to be found in the parties’ arguments, and the Court’s decision seems to have borne these initial impressions out: the decision for the unanimous Court was delivered by Justice Breyer and made relatively short work of the key issue disputed by the parties. Notably, the Court did not delve into more complicated substantive issues relating to the timing and process for monitoring retirement plan investments, leaving those issues for consideration by the Ninth Circuit Court of Appeals on remand. 

As originally filed in 2007, Tibble involved claims brought by the participants in the Edison International 401(k) plan of various fiduciary breaches associated with the investment options offered under the plan. The plaintiffs claimed that six of the plan’s investment options added to the plan (three in 1999 and three more in 2002) as retail-class (i.e., more costly) mutual funds were imprudent investments because the plan could have, allegedly, used its financial “weight” to obtain essentially the same investments at a lower cost through institutional-class shares. Both the district court and the Ninth Circuit generally concluded that the plan’s fiduciaries had not breached their fiduciary duties, but both courts did find fault with their decision to include the retail-class mutual funds – or, rather, the fact that the fiduciaries could not articulate a reasonable basis for having included those funds—and made a relatively modest award to the plan’s participants.

Related to that decision, the lower courts were forced to wrestle with ERISA’s six-year statute of limitations to determine when the “clock” started “ticking.” This ultimately resolved into the question considered and resolved by the Supreme Court: is a fiduciary’s decision to retain a plan investment the act or omission that triggers ERISA’s statute of limitations or is there a continuing (and somewhat open-ended) obligation to revisit the prudence of plan investments over time? Had the Court opted for the former (as the Ninth Circuit had), the participants’ claims would have been untimely since the selection of the investment options in question occurred in 1999, and the suit was initially filed in 2007.

As it happened, without considering whether the plan’s fiduciaries had breached their duty to monitor and remove any imprudent investments, the Supreme Court held that the plaintiffs could properly pursue their claims regarding the prudence of the retail-class funds selected in 1999. In effect, the Court adopted a “continuing violation” approach to ERISA’s statute of limitations, meaning that a participant will be able to pursue claims against a plan fiduciary for failing to properly monitor investments and remove imprudent ones if the failure to monitor and/or remove occurs within six years of the suit.

The Court identified other key issues associated with the selection and retention of investment options for retirement plans but opted to leave exploration of those issues to the Ninth Circuit. The Court did note that fiduciaries have a duty “of some kind” to periodically monitor a plan’s investment options and, if appropriate, to replace underperforming options. However, the Court did not specify the substance or timing for these periodical assessments. It is also important to note, as the Court did, that the decision to select a particular fund is distinct from the decision to retain that fund. Obviously, what was a good investment in year 1 may not be an appropriate investment in year 10.

So what does Tibble mean to the plan fiduciary tasked with the responsibility of overseeing a retirement plan’s investment options? The rules of the fiduciary road have not changed relative to ERISA’s expectations about theselection of investment options: ERISA’s prudence requirement continues to apply to such decisions, and the diligent fiduciary will be sure to evaluate its options in light of the available alternatives, the needs and expectations of the plan’s participants, and other relevant factors. Having initially selected prudent investment options (and documented its assessment!), the diligent fiduciary will now have additional incentives to regularly monitor plan investment options and remove any underperforming ones. Although the precise boundaries of the Court’s decision remain to be mapped out by the lower courts, “set it and forget it” is not a viable strategy for mitigating fiduciary risk in the wake of Tibble