The U.S. Supreme Court on May 18 unanimously vacated a federal appellate court ruling that found that employee retirement plan participants’ claims about fees applied to their plan were time-barred, sending a clear message that plan fiduciaries have an ongoing duty to monitor investments, their expenses and other related claims within that duty’s statute of limitations and sometimes beyond.
The decision in Tibble v. Edison International (No. 13-550, May 18, 2015), the first “excessive fee” case heard by the Supreme Court, was expected to have broad implications for the monitoring responsibility of plan sponsors and other fiduciaries, observers said after the case was heard in February (see February story). Yet the High Court limited its request for rehearing of the case by the appellate court to the six-year period, while emphasizing the importance of trust law that mandates unlimited monitoring. Historically, this statute of limitations after selection has been applied for the monitoring of investments in employer retirement plans.
The court in the decision expressed no view on the scope of the company’s fiduciary duty in the case, such as whether a review of the contested mutual funds is required, or what type of review might be needed, the decision said.
“The Ninth Circuit erred by applying a 6-year statutory bar based solely on the initial selection of the three funds without considering the contours of the alleged breach of fiduciary duty,” Justice Stephen Breyer’s opinion said. The ruling said the fiduciary duty specified in ERISA is based on trust law, which provides that a trustee has a continuing duty — separate from the need to exercise prudence in selecting plan investments from the outset — to monitor and remove imprudent investments as warranted.
The case is remanded to the 9th Circuit to consider the plaintiffs’ claims that Edison breached its duties within the relevant statutory period only.
At least one legal blog specializing in ERISA matters labeled the decision a “significant victory” for the plaintiffs and plan participant lawsuits in general, although it noted it did not “definitively rule on how exactly a claim must be plead to trigger the continuing duty to monitor and remove,” wrote Thomas E. Clark Jr. on his Fiduciary Matters blog May 18, shortly after the ruling was issued.
The class-action plaintiffs in Tibble claimed, among other charges, that Edison breached its fiduciary duties in a procedural way in 1999 and 2002 by not investigating lower-cost share options for the company’s 401(k) plan menu. On the recommendation of its investment adviser, Edison selected retail-class shares at those times for mutual funds offered in the 401(k) plan. By the time the litigation for the class to seek damages was filed in 2007, the Edison plan was valued at nearly $4 billion and had about 20,000 participants, which would have entitled it to lower institutional fee levels.
The case raised the question of how long a fiduciary must monitor its employer-sponsored plan’s investments — or whether that duty can instead be measured at a single point in time.
To read the complete story on Thompson’s HR Compliance Expert, click here.