On May 18, 2015, Justice Breyer, writing for a unanimous Supreme Court, vacated and remanded the Ninth Circuit’s dismissal in Tibble v. Edison Int’l, 729 F.3d 1110 (9th Cir. 2013) of certain fiduciary claims as time-barred under ERISA’s fiduciary statute of limitations provision. Tibble v. Edison Int’l, 2015 U.S. LEXIS 3171 (May 18, 2015). The Court ruled that ERISA’s six-year limitation period does not bar a claim alleging that an investment is imprudent, even if the investment was selected beyond ERISA’s limitation period for a breach of fiduciary duty. The Court reasoned that fiduciaries have a continuing duty to monitor investments for suitability. As long as the investment remains an offering in the retirement plans, the Court held, a failure to monitor is a separate violation under ERISA that continues as long as the investment is offered in a retirement plan.
The Ninth Circuit was not the only circuit that had dismissed claims involving investment designations beyond the reach of the six-year limitation period. Other circuits, including the First, Fourth, and Eleventh, had dismissed claims on similar grounds. See David v. Alphin, 704 F.3d 327 (4th Cir. 2013)(dismissing action challenging Bank of America retirement plan’s selection of mutual funds because the action was filed more than six-years after the selection was made); Fuller v. Suntrust Banks, 744 F.3d 685 (11th Cir. 2014)(rejecting continuing violation theory in the investment selection context); Riley v. Metropolitan Life Ins. Co., 744 F.3d 241 (1st Cir. 2014)(same). All these circuit court decisions are now suspect after the Supreme Court’s decision in Tibble.
In 2007, Plaintiffs, who were participants of the “Edison 401(k) Savings Plan” (the Plan), brought an action against the Plan fiduciaries alleging that the fiduciaries paid too much for Plan administration when they selected six retail mutual funds rather than use their economic leverage to purchase comparable, lower priced institutional funds. With respect to three mutual funds added in 1999, the Ninth Circuit affirmed the district court’s ruling that ERISA’s six-year limitation provision barred claims asserting imprudent designation of the selection of investments in a 401(k) plan because the Plaintiffs failed to establish a change in circumstances within the six year period that would have triggered a fiduciary obligation to reexamine the investments. Id. at *7 (citing 729 F.3d 1110 (9th Cir. 2013)).
II. Supreme Court Decision
The Supreme Court reversed and held that the Ninth Circuit had failed to properly apply ERISA’s six-year statute of limitations. ERISA Section 413(1) provides that no action may be commenced for a breach of fiduciary duty six-years after: “(A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation ...” The Court noted that the Ninth Circuit correctly asked whether the fiduciaries’ "last action which constituted a part of the breach or violation" of their prudence obligation occurred within the relevant six-year period. But the Ninth Circuit then focused on the act of designating or selecting the mutual funds, which the Court concluded failed to fully consider the nature of the fiduciary duty to monitor. Id. at *12.
The Court implicitly rejected the Ninth Circuit’s ruling that “only a significant change in circumstances could engender a new breach of a fiduciary duty.” Id. at *8-9 (emphasis in original). The Court noted that the determination of the “contours” of fiduciary duties under ERISA is frequently guided by trust law and noted that, under traditional trust law, a trustee has "a continuing duty to monitor trust investments and remove imprudent ones.” Id. at *10-11. The Court noted that the Uniform Prudent Investor Act also has adopted the principle that a trustee has a “continuing responsibility for oversight of the suitability of the investments already made.” Id. at *11 (citing Uniform Prudent Investor Act §2, Comment, 7B U. L. A. 21 (1995)). The Court did not address the merits of the alleged fiduciary breach and noted that upon reconsideration the Ninth Circuit could conclude that the fiduciaries did not breach their duty to monitor. Id. at *13. The Court also did not address the scope of the duty to monitor.
ERISA fiduciary breach cases are fact intensive and circumstance specific so it is not astonishing that the Supreme Court did not provide more specific guidance on the parameters of the duty to monitor. As many courts have noted over the years, ERISA's prudence standard is by necessity a flexible standard because fiduciaries of employee benefit plans are charged with making decisions that range from the investment of plan assets to the selection of service providers. The case nonetheless establishes the importance of the fiduciary duty to monitor and clarifies the role that the obligation plays under ERISA’s statute of limitations provision.