Supreme Court Holds ERISA Plan Fiduciaries Have Continuing Duty to Monitor Plan Investments – Claims for Imprudent Investment Fund Selections Not Barred by Six Year Limitation Period Even Though Made Years Earlier

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By:  Tony Hart

 

On May 18, the US Supreme Court addressed the application of ERISA’s six year statute of limitations to the timeliness of a complaint that ERISA plan fiduciaries breached their fiduciary duty with respect to investment fund selections made more than six years prior to participants filing suit. Tibble v. Edison International, 575 U.S. ___ (2015), No. 13-550.

The background to the Supreme Court decision was a claim by 401(k) plan participants that plan fiduciaries had acted impudently by offering six higher priced retail-class mutual funds as plan investments when materially identical lower priced institutional-class mutual funds were available.  The initial lawsuit was filed in 2007.

The issue before the Supreme Court was whether the participants’ claim about the suitability of the retail class of funds added in 1999, which were selected more than six years before the participants filed suit in 2007, was time-barred.

ERISA provides that a breach of fiduciary claim is timely if filed no more than six years after “the date of the last action which constituted a part of the breach or violation” or “in the case of an omission the latest date on which the fiduciary could have cured the breach or violation”. The application of this provision of ERISA required the Court to consider whether the fiduciaries’ alleged imprudent retention of an investment is an “action” or “omission” that triggers the running of the six year limitations period.

The Supreme Court held that (1) ERISA’s fiduciary duty is derived from the common law of trusts, (2) under trust law, a trustee has a continuous duty to monitor trust investments and remove imprudent ones, (3) this continuing duty exists separate and apart from the duty to exercise prudence in selecting investments at the outset, and (4) so long as a plaintiff’s claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely.

Employer Takeaways

The message of the Tibble decision is that plan fiduciaries with investment responsibilities have the duty to (1) choose investment options in a 401(k) plan in a prudent fashion, (2) continue to monitor the investment’s suitability for participant investments over time, and (3) if investment funds become imprudent, they must be removed within a reasonable period of time and replaced by prudent investment funds.

This article was written by Tony Hart, a member of the Legal Affairs Committee of Detroit SHRM, and of counsel to the law firm of Stevenson Keppelman Associates, located in Ann Arbor, MI specializing in employee benefits law issues. He can be reached at (734) 747-7050 or tony@skalaw.com. 

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