Monday’s Supreme Court ruling on Tibble v. Edison International may change the legal landscape when it comes to suing over fiduciary responsibility. Plan sponsors should take note of this case, letting it serve as a reminder to continually monitor plan funds and fees.
Moving all the way to the Supreme Court, the original suit came from employees of Edison International. As participants in the 401(k) plan, they noticed that the plan utilized retail share classes for several that had institutional share classes available with lower fees. The plaintiffs claimed that the company breached its fiduciary duty by not offering the lower-cost options for participants and filed a lawsuit. Edison sought to dismiss the suit on the basis that the Employee Retirement Income Security Act (ERISA) provides a six-year statute of limitations, meaning that participants could only sue over funds that had been added within the last six years, and the funds in question had been added to the plan eight years prior to the suit.
A federal district court agreed with Edison’s defense and threw out the lawsuit, which was upheld by the Ninth Circuit Court of Appeals. However, the Supreme Court subsequently agreed to hear the case. A unanimous ruling on Monday, May 18 vacated the Ninth Circuit Court’s ruling, and remanded the case back to the lower court for further consideration. In the decision, Justice Stephen Breyer stated:
“…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.”
With this decision, the Supreme Court has essentially adopted a continuing violation theory of liability, under which ERISA’s statute of limitations will remain open so long as a contested investment remains part of a retirement plan’s menu. In light of this ruling, the importance of ongoing monitoring of a plan’s investment offerings by plan sponsors cannot be overstated. With this case reminding participants that they can sue if funds are not properly monitored, it becomes even more essential to take a close look at fees and share classes on a continuous basis.
To read the full Supreme Court ruling, visit http://www.supremecourt.gov/opinions/14pdf/13-550_97be.pdf.