Applying The Supreme Court’s Ruling on the Fiduciary Duty to Continuously Monitor Plan Investments

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Abstract

In Tibble, et al. v. Edison International, et al., 575 U.S. __, 135 S. Ct. 1823 (2015), the Supreme Court unanimously ruled that a fiduciary’s duty of prudence in investing, as provided in 29 U.S.C. § 1104(a)(1)(B), requires that an ERISA plan fiduciary has a continuing duty to monitor and remove imprudent investments, separate and apart from the duty of prudence required in initially selecting the investments.

29 U.S.C. § 1113 provides, in relevant part, that breach-of-fiduciary-duty claims may not be commenced “(1) six years after (A) the date of the last action which constituted a part of the breach or violation.” Thus, a claim filed within six years of the last failure to monitor and remove imprudent investments is timely. Accordingly, the Supreme Court held that the claim alleging imprudent investing was not time-barred.

It vacated the Ninth Circuit’s decision to bar the claim as untimely based on the initial selection of the investments. The Ninth Circuit reasoned that there is no continuing violation theory extending the statute of limitations and there were no changed circumstances after the initial selection significant enough to warrant a full due-diligence review of the funds.

On remand, applying the Supreme Court’s interpretation of the duty of prudence in investing, the district court ruled that the fiduciaries violated their duty of prudence and awarded damages.

Tibble is a landmark case of monumental importance. There are trillions of dollars of assets in 401(k) plans, and it is crucial that these plans be protected in accordance with the provisions in ERISA. These plans impact the economy and the retirement security of millions of workers and their beneficiaries. The Supreme Court has put plan fiduciaries on notice that their duty of prudence does not end with the initial selection of plan assets. Tibble is causing fiduciaries to review and revise their investment committee activities. It has resulted in a multitude of lawsuits in a variety of settings involving billions of dollars of potential liability and will continue to do so for the foreseeable future. Practitioners, plan fiduciaries and participants, and academics must be aware of Tibble. It is of particular importance to tax professionals as ERISA overlaps with the Internal Revenue Code, and they often serve as advisors to investment committees, plan participants, and as fiduciaries.

Author

• Mark Aquilio, St John's University