On May 18, the Supreme Court handed down a decision [pdf] in the case of Tibble v. Edison International, confirming that ERISA fiduciaries have a continuing duty to monitor and make prudent decisions regarding trust investments.

Under ERISA, a fiduciary must discharge his or her responsibility with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use.  ERISA provides a six year statute of limitations for breach of fiduciary duty claims.  In Tibble, employee-beneficiaries of Edison International’s defined contribution plan sued Edison and others, alleging that the company breached its fiduciary duties by offering retail-class mutual funds that charged higher fees rather than virtually-identical institutional-class funds that charged lower fees.   At issue were three mutual funds added to the 401(k) plan in 1999 and three funds added in 2002. 

The federal district court in California concluded that with respect to the funds added 2002, the employer “failed to exercise ‘the care, skill, prudence and diligence under the circumstances’ that ERISA demands.”  The defendants argued that the claims with respect to the 1999 funds, however, were barred by the statute of limitations, since the decision to designate the funds occurred more than six years before the suit was brought.  The district court agreed, and noted that the plaintiffs failed to show that circumstances changed significantly such that a prudent fiduciary would have undertaken a full due-diligence review of the funds after they were selected.  The Ninth Circuit upheld the district court [pdf], concluding that the act of designating an investment for inclusion in a fund triggered the running of the statute of limitations, and that only a “significant change in circumstances could engender a new breach of a fiduciary duty….”

The Supreme Court disagreed, noting that under the common law of trusts, a fiduciary “is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.”  Under the duty of prudence, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones.  This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” If a plaintiff alleges that a fiduciary breached that continuing duty of prudence, and that breach occurred within six years of suit, the claim would not be barred by the statute of limitations.  

The Supreme Court did not decide, however, whether Edison breached the duty of prudence or the scope of a fiduciary’s ongoing duties.  Rather, the Supreme Court remanded the case to the Ninth circuit to consider those issues in light of the principles of trust law.  The Court noted that after such a review, the Ninth Circuit might conclude that Edison “did indeed conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances.”  The Ninth Circuit may not have a chance to do so, however, as it appears Edison will be arguing that plaintiffs failed to raise claims of a breach of the ongoing fiduciary duty of prudence below.