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On February 24, 2015, the Supreme Court heard oral
arguments in Tibble v. Edison International which
involves the application of ERISA's six-year statute of
limitations. The limitations period during which a retirement plan
participant may bring a lawsuit alleging a breach of fiduciary duty
generally ends on the sixth anniversary of the last act that
constitutes the alleged fiduciary breach.
Below is more information about this important case.
If you'd like additional material, please let me know.
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latest ERISA and employee benefits updates.
Tibble Goes to the Supreme Court
Background. On February 24,
2015, the Supreme Court heard oral arguments in Tibble v. Edison
International which involves the application of ERISA's
six-year statute of limitations. The limitations period during
which a retirement plan participant may bring a lawsuit alleging a
breach of fiduciary duty generally ends on the sixth anniversary of
the last act that constitutes the alleged fiduciary breach.
Tibble involves the claim
that six retail class mutual funds selected by plan fiduciaries as
plan investment options were imprudent, because they charged higher
fees than identical institutional class funds that were allegedly
available to large investors, such as the defendant Edison's 401(k)
plan. Three of the retail class funds were added as plan investment
options in 1999 and three more were added in 2002, but the lawsuit
claiming that selection of these funds was imprudent was not
initiated by plan participants until 2007. By that time, the three
funds that were added in 1999 had been on the plan menu for more
than six years and the defendant successfully argued that ERISA's
statute of limitations barred the participants' claim of imprudence
with respect to those funds.
On the plaintiffs'
appeal of the district court's summary judgment for the defendant
on the issue of the 1999 funds, the Ninth Circuit Court of Appeals
rejected the plaintiffs' so-called continuing violation theory
under which the continued offering of an imprudent plan investment
option can constitute the commission of a second fiduciary breach
that occurs within the six-year limitations period. The Ninth
Circuit seemed to hold that in order for the plaintiffs' claim with
regard to the 1999 funds to go to trial, there needed to be a
change in circumstances significant enough to make continued
investment in those funds a new imprudent act. It is generally
acknowledged, however, that ERISA's fiduciary duties also include
the duty to monitor a plan's investments.
over Scope of Ninth Circuit Opinion. This is where we
pick up the tale on oral argument before the Supreme Court, because
a great deal of the justices' questioning concerned the scope of
the Ninth Circuit's opinion. Justices Breyer and Kagan, in
particular, took the view in their questioning of defendant's
counsel that the Ninth Circuit got it wrong if and to the extent
its changed circumstances test applies to the duty to monitor
investments, as opposed to the initial decision to offer the
investment on the plan menu. The response of defendant's counsel
justifying dismissal was that the duty to monitor entails a
different process than the duty of review on initial selection of
an investment and that ultimately monitoring will look to whether
there has been a change of circumstances and not require
fiduciaries to scour the market for a cheaper investment
alternative. In the defendant's view, this more rigorous
investigation of an investment that might apply when it is first
considered for a place on the plan menu does not carry over to the
duty to monitor.
Duty to Monitor. On the other side, the petitioners' counsel adamantly
maintained that a change in circumstances, such as would be
required by the Ninth Circuit's decision, was not necessary to
trigger periodic prudential reviews of investments, such as retail
class funds. However, as soon as plaintiffs' counsel referred to
the duty to monitor, Justices Sotomayor and Scalia began a line of
questioning as to what this duty might entail. The Court was
clearly looking for a compromise position which would not place an
undue burden on plan fiduciaries or require constant oversight by
the Federal courts. On plaintiffs' rebuttal, Justice Sotomayor
continued to press this point, noting that fiduciaries cannot
conduct a general market evaluation every three months as to
whether an investment should or should not be selected. Plaintiffs'
counsel disavowed this position and stated that information on
retail class and institutional class funds could have been found on
the internet. It was pointed out, however, that the plaintiffs' own
expert would not commit to the position that the putative
advantages of retail class funds would have necessarily been
discovered on a review by plan fiduciaries.
At one point,
Justice Scalia asked if an exception to the bar posed by the
statute of limitations could be either changed circumstances or the
manifest obviousness of the imprudence. Despite the plaintiffs'
focus on the lack of attention the defendant had paid to the
difference between the pricing of retail and institutional class
funds, their counsel failed to take up this offer. This may have
signified a lack of confidence as to whether the plaintiffs could
sustain their claim if this were the test for overcoming the
statute of limitations.
Conclusion. The justices were
receptive to the observations of the Assistant Solicitor General as
friend of the court that the only issue actually before the Court
was the timeliness of the plaintiffs' claim that there was a duty
to monitor plan investments. According to the Solicitor, whether
there had been an actual breach of this duty within the limitations
period was a separate question that would ultimately need to be
answered but was not a matter before the Court. How often and how
deep fiduciaries may need to look at plan investments in order to
satisfy their monitoring duty could be worked out by the lower
courts if the Supreme Court so chose.
appeared to be uncomfortable with the Ninth Circuit's change of
circumstances test that, in the words of Justices Sotomayor and
Scalia, was tantamount to selecting a new fund. As a result, it is
unlikely that the defendant will get the dismissal it seeks. In all
probability, the Court will confirm that the monitoring function is
ongoing for all plan investments and either craft a new standard
for how an investment is to be monitored or remand to the lower
courts to develop a such a test. This, in turn, will determine
whether the plaintiffs are allowed to take the matter of the 1999
funds to trial.
Despite the seeming
narrowness of the statute of limitations issue, Tibble is important
as a reminder to all plan fiduciaries that sitting on an investment
without periodically reviewing it is not allowed. Moreover,
Tibble's resolution will likely result in significant guidance on
how fiduciaries should carry out the monitoring function.