May 18, 2015
Section 409 of ERISA imposes personal liability on a plan fiduciary to make good to the plan any losses resulting from the fiduciary’s breach of any duties imposed by Title I of that statute. Section 413 provides generally that no action for breach of fiduciary duty may be brought after the earlier of:
A 2013 decision of Ninth Circuit Court of Appeals dismissed Section 409 claims against the fiduciaries of a 401(k) plan as to various allegedly imprudent mutual funds that were included as plan investment options more than six years before suit was filed. Holding that the fiduciaries had a continuing duty to monitor participants’ investment options and to remove imprudent ones, the U.S. Supreme Court yesterday vacated that decision. Tibble v. Edison Int’l, 2015 U.S. LEXIS 3171 (U.S. May 18, 2015).
The Supreme Court’s Tibble Decision
Plaintiffs in Tibble are participants in their employer’s participant-directed 401(k) plan. They filed suit in 2007, claiming that plan fiduciaries had an ongoing duty to monitor 401(k) investment options and, as part of that monitoring process, should have discovered that the plan could have offered lower-cost institutional mutual fund shares instead of the more expensive options that had been selected.
The Ninth Circuit had affirmed dismissal of the breach-of-fiduciary-duty claims as to mutual funds included as investment options prior to the six-year period preceding plaintiffs’ lawsuit, because plaintiffs failed to allege any change of circumstances triggering a duty by fiduciaries to review and change investments within that period.
In a unanimous opinion authored by Justice Breyer, the Supreme Court held that ERISA’s fiduciary duty, derived from the law of trusts, imposes a continuing duty to monitor plan investments and remove imprudent ones. Accordingly, so long as a plaintiff alleges a breach of this continuing fiduciary duty during the six-year period before suit, the claim would be timely.
Justice Breyer did not spell out what was required in the duty to monitor, other than the requirement in ERISA Section 404(a)(1) that the fiduciary discharge his or her duties “with the care, skill, prudence, and diligence” that a prudent person “acting in a like capacity and familiar with such matters” would use.
The Supreme Court remanded the case to the Ninth Circuit for consideration of whether a breach of the continuing fiduciary duty to monitor had been properly alleged. Analogous trust law, said the Court, would be important in determining the contours of this fiduciary duty.
The decision was no surprise after the oral argument in the case, in which all parties agreed on the following:
Observations
The decision in Tibble is likely to result in increased litigation over fiduciaries’ investment-monitoring responsibilities, not only as to fees charged by fund managers but also regarding other matters affecting the prudence of investment choices. Here are some suggestions to help minimize the chances that fiduciaries’ investment choices would be legally challenged:
Fiduciary responsibilities surrounding retirement plan fees also will continue to be an area of regulatory activity.
For further information, please contact any of the authors of this article − James P. McElligott Jr., Katie M. Rak and Larry R. Goldstein − or any other member of the McGuireWoods employee benefits team.