The U.S. Supreme Court unanimously ruled that 401(k) plan participants may file an ERISA breach-of-fiduciary duty lawsuit more than six years after an investment was selected based upon the retirement plan’s fiduciaries’ continuing duty to monitor and review investments. See Tibble v. Edison Int’l, No. 13-550 (May 18, 2015). The justices rejected lower court rulings that applied the 6-year statute of limitations under ERISA to the initial selection of an investment unless changed circumstances required that a new filing period should apply.
The plaintiffs in this case argued that the fiduciaries their 401(k) Savings Plan acted imprudently when they offered six higher priced retail-class mutual funds as plan investments when materially identical lower priced institutional-class funds were available. Three of the challenged funds were selected in 1999; the other three were selected in 2002. However, the lawsuit was not filed until 2007, prompting the lower courts to rule that the challenge to the 1999 fund selections was time-barred because there was no allegation of any change in circumstances that would have led the fiduciaries to e review and change the 1999 investments.
The U.S. Supreme Court reversed, concluding that retirement plan trustees have an on-going, continuing fiduciary duty to monitor and review the plan’s investments and remove imprudent ones. As a result, people wishing to challenge these selections do not have to point to a change in circumstances. As long as a lawsuit is brought within 6 years of any alleged breach of this continuing duty, the claim is timely.
The justices refused to define the precise scope of the fiduciary duty to monitor and review; they merely noted that such a duty exists and then remanded the case back to the Ninth Circuit Court of Appeals to decide if there was a proper claim for a breach of fiduciary duty within six years of any claimed breach of that duty.
While the duty to monitor has always existed, the potential for liability arising from investment decisions has increased. Troubling news indeed for people servicing in this capacity.