Under the Employee Retirement Income Security Act (ERISA), a plan fiduciary has important responsibilities and is subject to specific standards of conduct because he or she is acting on behalf of retirement plan participants and their beneficiaries.
One of the pivotal fiduciary responsibilities under ERISA is the duty to act prudently. Section 404(a)(1)(B) of ERISA provides that a fiduciary must discharge his duties with respect to a plan — “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”
This duty requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with the necessary professional knowledge to properly carry out the investment and other functions.
The duty of prudence also requires that the fiduciary focus on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for making those decisions. For instance, when hiring any plan service provider, a fiduciary may want to use a Request for Proposal (RFP) process to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, the fiduciary can document the decision-making process and make a meaningful comparison and selection.
The fiduciary duty is also ongoing. In Tibble v. Edison International,* the U.S. Supreme Court addressed the issue of whether ERISA’s six-year statute of limitations barred a claim based on the addition of certain investment choices to the retirement plan’s menu. The Supreme Court unanimously held that the Ninth Circuit had erred when it barred the claims because six years had passed since the addition of the choices to the plan.
The Court reasoned that ERISA’s fiduciary duty is “derived from the common law of trusts,” which 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.
So long as a plaintiff’s lawsuit is commenced within six years of the alleged breach of the continuing duty of prudence, the claim is deemed timely. In Tibble, though the investments in question were originally added to the fund menu outside the six-year statute of limitations, the fiduciary had allegedly failed to monitor and remove imprudent investments and thereby breached the duty to monitor within the statute of limitations period.
* 575 U.S. ___ (2015)
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