Supreme Court: Fiduciary Duty to Continually Monitor Investments Makes Limitations Period a Moving Target

This morning, a unanimous Supreme Court reversed an employer fiduciary’s judgment on a breach of fiduciary duty claim that had been found untimely.  Tibble v. Edison Int’l, No. 13-550 (5-18-15).  The plaintiffs alleged that the fiduciaries violated their duty by paying higher administrative fees for retail funds instead of selecting lower-fee investor class funds while administering the defined contribution ERISA plan (i.e., a 401(k) plan). Based on ERISA’s 6-year statute of limitations, the lower courts found the claim to be untimely as to funds purchased in 1999.  However, the Supreme Court concluded that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.”

Section 1113 [of ERISA] reads, in relevant part, that “[n]o action may be commenced with respect to a fiduciary’s breach of any responsibility, duty, or obligation” after the earlier of “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.” Both clauses of that provision require only a “breach or violation” to start the 6-year period.

While the “Ninth Circuit correctly asked whether the ‘last action which constituted a part of the breach or violation’ of respondents’ duty of prudence occurred within the rele­vant 6-year period,” that court erred in finding the act of selecting the higher-cost funds to be the last relevant action for statute of limitation purposes.

Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting invest­ments at the outset. . . ., the trustee must “systematic[ally] conside[r] all the investments of the trust at regular intervals” to ensure that they are appro­priate.

The Uniform Prudent Investor Act confirms that “[m]anaging embraces monitoring” and that a trustee has “continuing responsibility for oversight of the suitability of the investments already made.”

This being said, the Court “express[ed] no view on the scope of respondents’ fiduciary duty.”  It remanded the case to consider whether the fiduciaries failed to review and monitor within the six year limitations period.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.