May 19, 2015
On May 18, 2015, the United States Supreme Court unanimously ruled in Tibble v. Edison International, 575 U.S. ____ (2015), that 401(k) plan beneficiaries’ claims alleging the holding of imprudent plan investments were not time-barred under the Employee Retirement Income Security Act of 1974’s (ERISA’s) six-year statute of limitations.
In Tibble, a group of beneficiaries alleged that fiduciaries of Edison International’s 401(k) plan breached their ERISA fiduciary duties by offering six higher-priced (based on administrative fees) retail-class mutual funds as plan investment options when materially identical, lower priced institutional-class mutual funds were available. Three of the mutual funds at issue were initially added to the plan’s investment offerings in 1999 and three were added in 2002. The beneficiaries filed their complaint with the district court in 2007.
Section 413 of ERISA provides, in pertinent part, that actions alleging a fiduciary breach may not commence more than six years following the earlier of "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." 29 U.S.C. § 1113. The Court of Appeals for the Ninth Circuit had ruled that this provision time-barred the plan beneficiaries’ claims with respect to the three investment options added in 1999, as the investment options were initially selected by the plan more than six years prior to the date suit was filed in 2007 and that no "change in circumstances" had occurred "that might trigger an obligation to review and to change investments within the 6-year statutory period."
The Supreme Court vacated the Ninth Circuit’s ruling, holding that a fiduciary’s retention of an allegedly imprudent investment option is an "action" or "omission" under ERISA section 413 that triggers the running of the 6-year limitations period. The Court looked to principles of trust law and noted that "a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset." The Court also noted that "the nature and timing of the review [of investments are] contingent on the circumstance."
The Court remanded the case to the Ninth Circuit for a determination as to whether Edison International’s 401(k) plan fiduciaries breached their fiduciary duties within the relevant 6-year statutory period. The Court did not provide the lower courts any guidance on what ERISA’s requirements are for a periodic investment review. That determination will thus be left to the lower courts in the first instance, perhaps with Supreme Court review at a later date.
In light of Tibble, ERISA plan fiduciaries should review their investment monitoring procedures and investment policy statements to ensure that regular, periodic monitoring is undertaken and properly documented. They should also give due consideration to the alternatives where there are multiple mutual fund classes available based on the plan’s level of investment. Following these procedures should significantly mitigate the ERISA risk.
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Gibson Dunn filed a brief in the Supreme Court on behalf of the National Association of Manufacturers, the Chamber of Commerce of the United States of America, the ERISA Industry Committee, the American Benefits Council, and the Business Roundtable.
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