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Duty to Monitor Investments Extends Statute of Limitations for Fiduciary Breach Claim Says Supreme Court

The Supreme Court has decided an important statute of limitations issue in an ongoing fiduciary breach case, Tibble v. Edison InternationalTibble has attracted attention up to this point for its substantive claim: that plan fiduciaries breached their duty of prudence when they failed to use the plan’s status as an institutional investor to gain an edge on fund fees.  Instead of offering lower-cost institutional-class mutual funds, which were available to the plan because of its pooled investment resources, the plan fiduciaries in Tibble offered 401(k) plan participants the option of investing only in retail-class funds, with higher fees and expenses that were passed on to participants.

Up to this point, the interesting question in Tibble has been how the courts will strike the balance between the protection afforded to plan fiduciaries under ERISA § 404(c) and those same plan fiduciaries’ duties to select a prudent investment menu from which participants may choose.  ERISA § 404(c) has, up to this point, proved fairly powerful in transferring risk from fiduciaries to plan participants when it comes to participant-directed retirement plans.

The Supreme Court did not address this substantive claim in its decision, leaving that to the Ninth Circuit on remand.  However, the Court’s decision was a win for plaintiffs in that it expanded the statute of limitations in fiduciary breach litigations.  Citing trust law, the Court ruled that a plan fiduciary’s duty of prudence requires continued monitoring of investment options.  Thus, as was relevant in this case, the six-year statute of limitations restarted at each junction where the monitoring duty arose.

Even more importantly, however, are the implications in the Court’s procedural decision for a plan fiduciary’s substantive duties.  By emphasizing the fiduciary’s ongoing duty to monitor, the Court left the door open for the Ninth Circuit (a notoriously liberal one) to find a fiduciary breach based on a failure to monitor (and change) the plan’s fund lineup over time.  Thus, in the guise of a purely procedural ruling, the Court nudged lower courts toward a more expansive view of a plan fiduciary’s duties as well as the time frame in which fiduciary breach claims must be brought.

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Ann Fievet