Earlier this week, the U.S. Supreme Court unanimously decided the case of Tibble v. Edison International. In Tibble, the Court held that the statute of limitations under the Employee Retirement Income Security Act of 1974 (“ERISA”) permits participants under “401(k)” and other participant-directed retirement plans to bring claims that plan fiduciaries failed adequately to monitor investment fund options, where the investment funds at issue were initially selected for the plan’s menu of investment options more than six years before the claim. We discussed Tibble in a prior OnPoint shortly after the Court granted certiorari in the case.
The Court in Tibble reversed the U.S. Court of Appeals for the Ninth Circuit, which had held that claims regarding funds initially selected outside of ERISA’s six-year statute of limitations were time-barred.1 In particular, the Ninth Circuit, agreeing with the Fourth Circuit,2 held that the continuing maintenance of an imprudent investment option is not an act that triggers liability, and that, therefore, the plaintiffs could allege a fiduciary breach only with respect to investment alternatives initially selected within the applicable six-year period.
Reversing the Ninth Circuit, the Court held that a breach of ERISA’s “continuing” fiduciary duties, including a duty to monitor, gives rise to a new cause of action. Thus, under Tibble, the plaintiffs’ claims are timely with respect to any alleged breach of the monitoring obligation that occurred no more than six years before the claim is made. Tibble clearly establishes that the time at which a fund is initially added to the investment menu under a participant-directed plan is not necessarily determinative of whether the plaintiffs’ claims relating to the continued inclusion of the fund under the plan are time-barred.
Other substantive issues relating to the scope of a fiduciary’s duties had been decided in the lower courts in Tibble, but the Court, in agreeing to hear the case, limited its review to the statute-of-limitations issue (as the U.S. Department of Labor had suggested to the Court in its amicus brief). Given the Court’s limited scope of review, Tibble does not establish the contours of what a fiduciary’s monitoring duties actually are. However, while Tibble’s actual holding is limited to the question surrounding the statute of limitations, the Court nevertheless took the opportunity to set out some general principles relevant to a fiduciary’s conduct in connection with the administration of a participant-directed retirement plan. In this regard, the Court lays out the general principle that, under ERISA’s generally applicable prudence standard, “a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.”
In summarizing its holding in Tibble, the Court reiterated its conclusion regarding ERISA’s statute of limitations against the backdrop of its discussion of a fiduciary’s continuing duty to monitor. The Court stated:
In short, under trust law, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.
It is arguably not surprising that the Court decided that a fiduciary can be sued for failing adequately to monitor inclusion of a fund in a plan’s investment menu after six years following the fund’s initial selection. Commentators had wondered whether the Court would provide that some kind of factual change within the six-year limitations period is needed in order to restart the statute of limitations. The Court, however, did not impose any such requirement, and, as a result, claims asserting a breach of ERISA’s duty to monitor (or of any other continuing fiduciary obligation) may be brought at any time with respect to the prior six years, without the need to show any change in circumstances.3
For those employers and plan fiduciaries that are appropriately pursuing their monitoring duties, Tibblemay not have a substantial impact on day-to-day plan administration. Rather, the effect of the decision may more likely be that plaintiffs will less frequently be met with a bar under ERISA’s statute of limitations where claims regarding an alleged failure to monitor (or other similar claims regarding alleged continuing breaches) are brought more than six years after the initial inclusion of a fund in the plan’s investment menu. It remains to be seen whether the Court will eventually take a case that gives it the opportunity to decide just what ERISA’s prudence standard requires, as a matter of substance, in connection with a fiduciary’s duty to monitor the selection of funds in the investment menu.