In a unanimous decision, the U.S. Supreme Court in Tibble v. Edison International held that plan fiduciaries owe an ongoing duty to review plan investments periodically to ensure compliance with their obligations under the Employee Retirement Income Security Act (ERISA). In doing so, the Court reversed the Ninth Circuit's holding that the statute of limitations for challenges to the continued offering of an investment option begins running only at the time the investment option is selected by an ERISA plan fiduciary (absent a change in circumstances), but stopped short of defining any specific obligations apart from a "continuing duty to monitor investments and remove imprudent ones."1 The decision reinforces the importance of maintaining and documenting a formal program for review of all investment options under an individual account plan.
Factual and Procedural Background
The respondent company sponsored and maintained a 401(k) savings plan ("the Plan"). The Plan held $3.8 billion in assets for the approximately 20,000 participants in the Plan.2 In 2007, several individual participants in the Plan brought a class-action suit, alleging that the Plan's fiduciaries violated their duty of prudence under ERISA by offering numerous mutual funds as investment options, because they had high hidden fees and expenses. Plaintiffs argued that the Plan would have been able to obtain virtually identical, but lower-priced, mutual funds.3
ERISA requires that plan fiduciaries discharge their duties
with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.4
But under a separate provision within ERISA, an action for breach of fiduciary duty must be brought within six years of:
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.5
In Tibble, the district court allowed the suit to proceed with respect to mutual funds that were added as investment options in 2002, since six years had not yet elapsed when the Plan participants filed their complaint in 2007.6 Then, the district court later ruled in favor of the participants on the merits, holding that the defendants "had not offered any credible explanation for offering retail-class, i.e., higher priced mutual funds that cost the Plan participants wholly unnecessary administrative fees."7 With respect to other mutual funds, however, the district court rejected the claims as time-barred, since more than six years had elapsed since those funds had been added to the Plan (as a result of collective bargaining negotiations with a union representing the company's employees).8
Both the plaintiffs and the defendants appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the district court's decision with respect to both the validity of the claims for the 2002 funds, and the dismissal of the claims related to the 1999 funds. The Ninth Circuit wrote that "[c]haracterizing the mere continued offering of a plan option...
