Everyone seems to be talking about last month’s Supreme Court decision in Tibble v. Edison International, even though its holding wasn’t all that momentous. But I’m not complaining. As an ERISA lawyer, I love when ERISA developments hit mainstream news because, for at least one brief fleeting moment, there is a connection between the ERISA world in which I dwell and the rest of the world.
That said, some question whether Tibble warrants the level of attention it is generating. Some say Tibble merely affirms a well-known principle of ERISA law—that is that an ERISA fiduciary has an ongoing duty to monitor plan investments. Others see Tibble as a reflection of enhanced scrutiny of the duty to monitor plan investments, as well as recognition of a statute of limitations that facilitates enforcement of that duty.
Specifically, the Supreme Court found in Tibble that because retirement plan sponsors, as fiduciaries, have a “continuing duty to monitor trust investments and remove imprudent ones,” plaintiffs may allege that a plan sponsor breached a duty of prudence by failing to properly monitor investments and remove imprudent ones. Further, the Court found that such a claim is timely as long as it is filed within six years of the alleged breach of continuing duty.
Facts: Tibble arose when current and former employees of Edison who were participants in a 401(k) savings plan offered by Edison brought suit against the company and other fiduciaries for alleged breaches of fiduciary duty. The alleged breaches occurred with respect to six retail class mutual funds selected for the savings plan, a group of three selected in 1999 and an additional group of three selected in 2002. The plaintiffs objected to these retail class mutual funds because similar institutional funds were available at a lower cost. Under ERISA, a plaintiff has six years after “the date of the last action which constituted a part of the breach or violation” to bring a claim. At commencement of the suit, the two groups of funds straddled the 6-year period from the date of their selection. If the only date that triggers the running of the statute of limitations is the date the funds were selected, the case would be simple. However, the law clearly provides a plaintiff with six years after the most recent action that constitutes a breach of fiduciary duty to bring their claim. Though this seems straightforward, what exactly comprises a breach or violation of a fiduciary duty has arguably not been clear.
In an attempt to resolve the uncertainty, the Ninth Circuit held that the continued offering of an allegedly imprudent investment is not sufficient on its own to trigger a new breach upon which plaintiffs can base a timely claim. Although the Ninth Circuit rejected the continued offering theory, it acknowledged that a showing of changed circumstances that occurred within the six-year period that would have prompted a replacement of existing funds may constitute a new breach upon which plaintiffs can base a timely claim.
The Supreme Court decided to clarify the issue and began by criticizing the Ninth Circuit for failing to consider the law of trusts in formulating its decision. Relying on trust law, the Supreme Court vacated and remanded the Ninth Circuit’s decision, holding that “a trustee has a continuing duty to monitor trust investments and remove imprudent ones,” and this continuing fiduciary duty allows a plaintiff to allege that “a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones.” So long as the alleged breach of the continuing duty to monitor the investment occurred within the six-year statutory bar, the claim is timely.
Where are we now? So where do we stand today? The Supreme Court has reiterated that a continuing fiduciary duty to review plan investments attaches to plan sponsors and fiduciaries; although there is still uncertainty with regard to the precise scope of that duty. The extent to which fiduciaries must monitor plan investments will surely be the subject of future litigation. In the meantime, plan sponsors and fiduciaries should review their current processes and procedures for monitoring ERISA plan investments in light of their recognized fiduciary obligations. They should ensure that their investment reviews are properly documented and that they take into account the reasonableness and allocation of plan fees, performance, diversification and all other relevant facts. If Tibble can prompt such reviews, then the headlines will have served a far greater purpose than a momentary validation of my professional relevance – they will have enhanced participant protections and reduced fiduciary exposure with respect to plan investments. In that case, the “ado” would be warranted.
In Duda v. Standard Insurance Company, a recent case decided by the Federal District Court in the Eastern District of Pennsylvania, we are reminded of the limits on the type of relief an employer may obtain for participants in its insured ERISA plans. In this case, the employer filed suit against the insurer of its long-term disability plan under Section 502(a)(3) of ERISA, which provides the following:
“A civil action may be brought…(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.”
A suit brought by a fiduciary under 502(a)(3) is preferable since the de novo standard of review, which is less deferential to the party making the initial benefit determination, would apply. The court determined that the employer was not a plan fiduciary for purposes of making claims determinations, and therefore could not rely on this provision to sue the fiduciary that held such authority (i.e., the insurer). The court noted that even if the employer was considered to be a fiduciary, ERISA does not afford a fiduciary the right to sue if the relief sought can be obtained directly by the participant under 502(a)(1)(B), which provides the following:
“A civil action may be brought …(1) by a participant or beneficiary… (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan or to clarity his rights to future benefits under the terms of the plan.”
Thus, an employer’s leverage, if any, to pressure insurers to pay benefits rests with the power to move the business to a different insurer. Of course, that leverage is significantly impaired if the insurer is not interested in keeping the business.