On May 18, 2015, the U.S. Supreme Court decided the case of Tibble v. Edison International. Tibble was an employee of Edison and participated in its 401(k) plan. He and other employees sued Edison under the Employee Retirement Income Security Act (ERISA) for breach of fiduciary duty for offering six higher-priced retail-class mutual funds as plan investments when materially identical lower-priced institutional class mutual funds were available. However, three of the funds had been selected by Edison more than six years before the suit was instituted, and the lower courts held that ERISA’s six-year statute of limitations barred any legal action relating to those funds.
The Supreme Court, looking at trust law for guidance, reversed the lower court, holding that employers have a fiduciary duty to conduct a regular review of plan investments. The Court noted that “under trust law, 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 held that failure to comply with this continuing duty could be a breach of the fiduciary duty of prudence. The Court held that in such a case, as long as the alleged breach occurred within six years of suit, the claim was timely.
In their briefs to the Court, the parties agreed that the duty of prudence involves a continuing duty to monitor investments and remove imprudent ones, but disagreed on the scope of that responsibility. For example, did it require a review of the three funds in question, and if so, what kind of review did it require?
The Court noted that an ERISA fiduciary must discharge his or her responsibilities “with the care, skill, prudence, and diligence” that a prudent person, “acting in a like capacity and familiar with such matters,” would use. However, the Court went on to state: “We express no view on the scope of respondents’ [Edison’s] fiduciary duty in this case,” and remanded the matter to the Ninth Circuit Court of Appeals for determination of whether Edison breached its fiduciary duties within the six-year statute of limitations period. Read the Tibble case
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