In March 2013, we blogged about the Ninth Circuit’s decision in Tibble v. Edison Int’l, No. 10-56406 (9th Cir. Mar. 21, 2013). The plaintiffs in Tibble alleged that revenue sharing violated plan terms. The Ninth Circuit found against the plaintiffs, and also applied a six year statute of repose, and found in favor of the plaintiffs on the fiduciary decision to select three retail, as opposed to institutional, mutual funds as investment options.
The plaintiffs filed a Petition for Rehearing on the statute of limitations issue and use of the abuse of discretion standard. On August 1, 2013, the Ninth Circuit denied the Petition, but amended its earlier opinion clarifying its use of the abuse of discretion standard of review. See 2013 WL 3947717 (9th Cir. Aug. 1, 2013).
The original language of the opinion suggested that the Court had rejected the Second Circuit’s decision in John Blair Communications Inc. Profit Sharing Plan v. Telemundo Group Inc. Profit Sharing Plan, 26 F.3d 360 (2d Cir. 1994). In John Blair, the plaintiffs challenged the fiduciary’s allocation of plan assets. The Second Circuit did not use an abuse of discretion review, instead applying the prudent person standard — a tougher standard for a defendant fiduciary.
The Ninth Circuit’s amended opinion emphasizes that its decision to apply an abuse of discretion standard of review did not conflict with John Blair. The amended opinion states that the defendant in John Blair tried to avoid the prudent person standard by relying on plan interpretation, while the Tibble plaintiffs directly placed plan language at issue.
The amended opinion includes this footnote: “We thus leave for another day what judicial-review standard would apply in a case like John Blair where the Plan is said to authorize what statutory duties codified in ERISA forbid.”
So the lesson for fiduciaries governed by Ninth Circuit law is: While the Ninth Circuit still has spoken on whether revenue sharing may violate plan terms, it has yet to speak on whether revenue sharing may violate fiduciary prudence standards.