The unanimous decision handed down by the Supreme Court in Tibble vs. Edison International has made clear plan sponsors have an ongoing fiduciary duty to monitor the investments in 401(k) plans.
Citing the fundamentals of trust law, which the court said ERISA's fiduciary duty is derived from, the decision laid to rest the question of whether or not sponsors are liable for imprudent investments implemented in a plan more than six years before a claim is brought.
"A trustee has a continuing duty—separate and apart from the duty to exercise prudence in selecting investments at the outset—to monitor, and remove imprudent trust investments," wrote Justice Stephen Breyer, who delivered the opinion for the court.
The 9th Circuit Court of Appeals had ruled that three retail-class mutual funds Edison added to its investment menu in 1999 did not constitute a fiduciary breach, even though cheaper institutional-class options were available.
In doing so, the 9th Circuit interpreted ERISA's six-year statute of limitation to begin from the time an investment is first implemented in a plan.
But in overturning the lower court, the Supreme Court said, "the 9th Circuit did not recognize that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances."
The ruling could not have been clearer in confirming sponsors' fiduciary obligation to monitor their plans.
But the justices stopped short of establishing just what that monitoring process should look like, and whether or not Edison's monitoring processes failed ERISA's fiduciary standard.
In remanding the case, those questions have been sent back to the 9th Circuit.
Just what this all means for sponsors is subject to some debate. Here is some reaction from leading ERISA attorneys around the country:
Jerry Schlichter, Schlichter, Bogard and Denton, lead attorney for plaintiffs
"On behalf of Edison employees and all Americans who rely on 401(k)s for their retirement, we are very pleased with this historic and landmark, unanimous decision by the Supreme Court. Going forward, this decision will be of great significance for American workers and retirees for generations to come."
Marcia Wagner, The Wagner Law Group
"That the Supreme Court has decided Tibble on the narrowest possible grounds should not be surprising, since this was essentially the position advocated by the U.S. Solicitor General during oral argument. Jumping ahead, there is at least a possibility that the Ninth Circuit could take a similar approach by deciding the case on procedural grounds. As directed by the Supreme Court, the lower court will also consider the defendant's argument that the plaintiffs had failed to raise the argument that the failure to monitor was a new breach before they got to the Supreme Court. Thus, it is possible, albeit somewhat unlikely, that there may never be guidance from Tibble on the scope of the duty to monitor."
