May 18, 2015

A Fiduciary’s Duty to Monitor Retirement Plan Investment Alternatives Is Continuous and Not Restricted by ERISA’s Statute of Limitations

At this year’s Workplace Seminar, we discussed a case that was pending before the U.S. Supreme Court and the potential impact that the decision could have on fiduciary breach cases under the Employee Retirement Income Security Act of 1974 (“ERISA”).  On May 18, 2015, the U.S. Supreme Court unanimously held that retirement plan participants, in certain circumstances, are permitted to bring fiduciary breach lawsuits that challenge high-fee investment alternatives regardless of whether the initial decision was made outside of the statute of limitations period.     

In Tibble v. Edison International, participants claimed that the fiduciaries breached their duties under ERISA because they did not properly monitor investment alternatives nor did they attempt to negotiate lower mutual fund fees.  Specifically, the plan participants argued that: (i) the inclusion of retail share classes (which, by design, have higher fees than institutional mutual fund share classes) in the core fund lineup of the plan’s investment alternatives was imprudent; and (ii) the use of such revenue sharing violated the plan’s terms and ERISA.

The plan fiduciaries argued that ERISA’s 6-year statute of limitations barred a portion of the lawsuit because the plan fiduciaries initially chose the higher-fee investment alternatives more than six years before the lawsuit was filed. The U.S. Supreme Court explained that, under the general law of trusts, a fiduciary has a continuing duty to monitor trust investments and remove imprudent ones.  This continuing duty exists separate and apart from the fiduciary’s duty to exercise prudence in selecting investments at the outset. 

The U.S. Supreme Court found that the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) failed to consider analogous trust law and, therefore, remanded the case to the Ninth Circuit to consider the claim that the fiduciaries breached their duties under ERISA by failing to continuously monitor the fees associated with the plan’s investment alternatives.  This case points out the need for ERISA fiduciaries to continually monitor retirement plan investment alternatives, particularly fees, and document their due diligence process.     

For a copy of the U.S. Supreme Court’s opinion, click here.

For more information on ERISA’s requirement that fiduciaries continuously monitor a retirement plan’s investment options, contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell, LLP.

This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.

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