Summary of Tibble vs. Edison Ruling

On May 18th, the Supreme Court delivered its decision in Tibble v. Edison International in favor of the plaintiff. The case involves the question as to whether a fiduciary has an ongoing duty to monitor a 401(k) plan’s investments.

Case Summary:

• The plaintiffs in Edison’s 401(k) Plan sued their employer in 2007, claiming that plan fiduciaries imprudently offered six retail share class funds in the plan, despite there being institutional share classes available with lower investment expenses. The claim had to do with two rounds of mutual fund investment options – one set added in 1999 and one in 2002. With respect to the funds added in 1999, the defendants claimed that the six-year statute of limitations had expired because the funds were added to the plan more than six years ago.
• The lower courts agreed that fiduciary breaches occurred, but held that any breach in 1999 was outside the six-year statute of limitations set by ERISA.
• Plaintiffs claimed there is an ongoing duty to monitor the plan’s investments and the statute of limitations does not prevent recovery.

In a unanimous decision, the Supreme Court held that the Ninth Circuit erred in applying the six-year statute of limitations to a breach of fiduciary duty claim in that ERISA’s fiduciary duty imposes a continuing duty to monitor plan investments and remove imprudent ones. The Court’s reasoning is based on an examination of the history of ERISA’s fiduciary duty, which the Court explained is derived from the common law of trusts. This duty “provides that a trustee has a continuing duty – separate and apart from the duty to exercise prudence in selecting investments at the outset – to monitor, and remove imprudent trust investments.” The case was remanded back to the Ninth Circuit to determine on the merits whether a breach of fiduciary duty to monitor and remove improper funds occurred.

The bottom line for plan fiduciaries is regardless of how long an investment has been on their plan’s platform, there is a continuing fiduciary duty to monitor all investments. This serves as another reminder of the importance of having a prudent and ongoing review process in place. Plan fiduciaries should carefully document their evaluation of fees and overall reviews concerning the selection / de-selection of 401(k) plan investment options.