Supreme Court Vacates Ruling on Time-Barred ERISA Claims

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In Tibble v. Edison Int’l1, the U.S. Supreme Court today vacated a Ninth Circuit ruling that Edison plan beneficiaries' ERISA (Employee Retirement Income Security Act) fiduciary claims against the company based on allegedly imprudent 401(k) investments were time-barred, based on the continuing fiduciary duty to monitor and remove imprudent investments.

Beneficiaries of the Edison 401(k) Savings Plan (the "Plan") sued Plan fiduciaries, claiming, in relevant part, that they breached their fiduciary duties by offering higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available. The district court found that the beneficiaries' claims based on three funds that the Plan initially offered in 1999 were untimely under ERISA's six-year statutory period.2 The Ninth Circuit court affirmed, focusing upon the act of designating an investment for inclusion as the trigger of the six-year period and concluding that only a significant change in circumstances could create a new breach of fiduciary duty.

The Supreme Court disagreed, focusing instead on the law of trusts. Citing various sources, the Court recognized that under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones, which continuing duty exists separate and apart from the trustee's duty to exercise prudence in selecting investments at the outset. Thus, the Court continued, the trustee must systematically consider all investments of the trust at regular intervals to ensure they are appropriate. It therefore concluded that a plaintiff may timely allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones, so long as the alleged breach of the continuing duty occurred within six years of suit.

The Court remanded for the Ninth Circuit to consider the beneficiaries' fiduciary claims within this framework. It expressed no view on the scope of the respondents' fiduciary duty and the type of investment review required.

Impact to Plans and Their Fiduciaries: This decision underscores the need for "systematic" and "regular" review of plan investments, including mutual fund performance, expenses, and alternatives. Current fiduciaries have an ongoing responsibility to monitor all investments decisions—even if made by prior fiduciaries and regardless of the age of inclusion in the plan portfolio. This decision also potentially increases litigation exposure since ERISA's statutory period may provide less protection to plan fiduciaries for older investment decisions, reinforcing the need for fiduciaries to be diligent in observing good fiduciary practices that demonstrate adherence to prudent decision-making processes. The Ninth Circuit's decision on remand may provide additional detail on the scope of review those processes should entail.


1Tibble v. Edison Int’l, ___ U.S. ___ (2015). Justice Breyer wrote the unanimous decision for the Court.
2Section 413 of ERISA provides that no action for breach of fiduciary duty may be commenced after the earlier of "six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation." 29 U.S.C. § 1103.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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