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SCOTUS Decision on Retirement Plans

Posted Friday, September 18, 2015 by John S. Palmer

The US Supreme Court has ruled that the statute of limitations for suing a 401k plan administrator over an allegedly bad investment is not necessarily tied to when the investment is made.

In Tibble v. Edison International the court unanimously ruled that ERISA’s 6-year statute of limitations for breach of fiduciary duty is subject to the well-established common law rule that “a trustee has a continuing duty to monitor trust investments and remove improvident ones.”

In doing so, the court reversed a Ninth Circuit decision stating that Edison International could not be sued by 401k plan beneficiaries as to whether it breached its fiduciary duty by offering three specific mutual funds to plan participants starting in 1999; the beneficiaries claimed that Edison should have offered lower-priced but materially identical mutual funds instead.

The Ninth Circuit reasoned that the 6-year statute of limitation created by 26 USC §1113 had expired before suit was filed in 2007, adding that “[c]haracterizing the mere continued offering of a plan option, without more” as a subsequent breach of fiduciary duty would expose plan administrators to liability for decisions made decades earlier, and render the six-year statute of limitations meaningless.

The Supreme Court disagreed, noting that the duties of an ERISA fiduciary such as Edison are derived from the common law of trusts. The court cited several well known treatises on trust law for the proposition that a trustee must review the propriety of all trust investments at regular intervals, and said this “continuing duty to monitor trust investments and remove imprudent ones…exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” Therefore, the Ninth Circuit “erred by applying a 6-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 case was remanded to the Ninth Circuit “to consider petitioners’ claims that respondents breached their duties within the relevant 6-year period under §1113, recognizing the importance of analogous trust law.”

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