In a unanimous opinion issued on May 18, 2015, the Supreme Court confirmed a continuing duty of ERISA trustees to monitor investments. Although the case involved a complicated procedural history before arriving at the Supreme Court, the lawsuit presented a fairly simple question: is it sufficient for the ERISA duty of prudence that the fiduciary make prudent decisions to invest in the first instance, or must the fiduciary also make prudent ongoing decisions about whether it should change the composition of the plan’s portfolio or otherwise sell assets?
The case, Tibble v. Edison International, was brought by participants in the 401(k) plans of Edison International. The trustees of the 401(k) plans invested in “retail-class” shares of certain mutual funds, despite the availability of “institutional-class” shares offered by those same funds that were nearly identical but charged lower fees. The retail shares remained in the 401(k) plans’ portfolios for many years. The plan participants wished to challenge the prudence of the investments in retail shares versus institutional shares, but ERISA’s six-year statute of limitations barred any challenge to the original purchase. Instead, the plan participants alleged that the trustees violated their fiduciary duties under ERISA because they failed to monitor appropriately the investments on an ongoing basis and notice that almost identical shares with lower fees were available the whole time. Under this theory, the trustees’ alleged breach was an ongoing one and not barred by the statute of limitations.
A unanimous Supreme Court agreed with the plan participants, finding: “[u]nder 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. . . . So long as a plaintiff’s claims alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely."
The Court’s opinion does not end the dispute in Tibble v. Edison International, however. Having found that an ERISA trustee has an ongoing duty to monitor investments and that the participants’ claims are not barred by ERISA’s statute of limitations, the case has been remanded back to the lower court to consider the merits of those claims.
The Court’s slip opinion is available via https://www.supremecourt.gov/opinions/14pdf/13-550_97be.pdf