The U.S. Supreme Court recently held that a fiduciary of an ERISA covered retirement plan has an ongoing duty to monitor the prudence of the plan’s investments. The decision is Tibble v. Edison International, 2015 U.S. LEXIS 3171 (May 18, 2015).
In the case, Edison International had selected three “retail class” mutual funds for its 401(k) plan in 1999. Three more retail class funds were selected in 2003. The plaintiffs alleged a violation of fiduciary duty because institutional class funds, with less expensive fees, were available to the plan.
ERISA has a six year statute of limitations and Edison International argued that the selection of the funds in 1999 was outside of the statute of limitations. However, the Supreme Court decided in favor of the plaintiffs. The basic holding is that a fiduciary has an ongoing duty to monitor the prudence of the plan’s investments. Thus, the plaintiffs could allege a viable claim based on the company failing to remove those retail class funds from the lineup in later years.
It is important to note that the Supreme Court did not attempt to address the mechanics of how an employer satisfies its ongoing duty of monitoring plan investments. Thus, the case has been remanded to determine if Edison International did actually violate its fiduciary duties.
Experienced legal practitioners and investment advisors have long believed that fiduciaries do have an ongoing duty to monitor the prudence of plan investments. Thus, many employers do periodically review plan investment performance and fees.
Quite often, employers also hire outside investment advisors and consultants to assist in that process. Note that it is permissible to use plan assets to pay for reasonable expenses of obtaining outside investment advice.
- This case is no real cause for concern for an employer that currently reviews plan investments and plan fees pursuant to an ongoing, structured practice. However, the employer still might want consider how often the reviews are being conducted, and how thorough they are.
- On the other hand, if an employer does not currently review plan investments and plan fees pursuant to an ongoing, structured practice, the employer should seriously consider implementing one.
In addition, all employers should consider whether it is advisable to hire an outside investment advisor or consultant to assist in the review process.