Vernoia, Enterline + Brewer, CPA LLC

Tens of millions of Americans participate in employer-sponsored retirement plans. Plan trustees have many responsibilities, including investment decisions. In May, in a unanimous decision, the Supreme Court held that fiduciaries have a continuing obligation to monitor retirement plan investments.

ERISA

Employer-sponsored retirement plans are governed by federal law (ERISA). ERISA allows plan participants to bring an action against trustees for different reasons, such as a breach of fiduciary duty. Generally, ERISA provides that a breach of fiduciary duty complaint is timely if filed no more than six years after the date of the last action which constituted a part of the breach or violation or in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.

Litigation

In the case before the Supreme Court, which was filed in 2007, the plaintiffs argued that plan trustees had breached their fiduciary duties in 1999 and 2002. A federal district court and the Ninth Circuit Court of Appeals found that the claims arising from 1999 were untimely because they were not filed within the six year period. The Ninth Circuit found the plaintiffs had not established a change in circumstances that might trigger an obligation to review and to change investments within the six year period. The plaintiffs’ appealed to the Supreme Court, which agreed to hear the case.

Supreme Court’s decision

Justice Breyer delivered the Supreme Court’s opinion. ERISA’s fiduciary duty is derived, Breyer explained, from the common law duty of trusts. An ERISA fiduciary must discharge their responsibility with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with the matters would use, Justice Breyer further explained. The Uniform Prudent Investor Act, Breyer added, confirms that managing embraces monitoring and that a trustee has continuing responsibility for oversight of the suitability of the investments already made.

The Ninth Circuit did not consider the role of a fiduciary’s duty of prudence when it rejected the plaintiffs claims as untimely, the Supreme Court held. “The duty of prudence involves a continuing duty to monitor investments and remove imprudent ones under trust law,” Justice Bryer wrote. “The Ninth Circuit erred by applying a six-year statutory bar based solely on the initial selection of the three funds without considering the contours of the alleged breach of fiduciary duty.” The Supreme Court remanded the case to the Ninth Circuit for a determination at what point a fiduciary would be treated as having violated the continuing duty to monitor plan investments.

Tibble v. Edison Int’l., SCt., May 18, 2015

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