Tibble v. Edison Int'l
191 L. Ed. 2d 795, 2015 U.S. LEXIS 3171, 135 S. Ct. 1823 (2015)
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Rule of Law:
Under the Employee Retirement Income Security Act (ERISA), a fiduciary has a continuing duty to monitor trust investments and remove imprudent ones, and a claim for breach of this duty is timely as long as the alleged breach of the continuing duty occurred within the six-year statutory limitations period.
Facts:
- Edison International sponsored a defined-contribution 401(k) Savings Plan for its employees.
- In 1999, the plan fiduciaries, including Edison International, selected and added three retail-class mutual funds as investment options for the Plan.
- In 2002, the fiduciaries added three more retail-class mutual funds to the Plan.
- These retail-class funds had higher administrative fees compared to materially identical institutional-class funds available to a large investor like the Plan.
- The higher fees associated with the retail-class funds reduced the value of the plan participants' retirement accounts.
- The fiduciaries continued to offer these six retail-class funds as investment options in the years following their initial selection.
Procedural Posture:
- Beneficiaries of the Edison 401(k) Savings Plan (petitioners) sued Edison International (respondents) in the U.S. District Court for the Central District of California for breach of fiduciary duty under ERISA.
- The District Court held that claims regarding funds added in 1999 were barred by ERISA's six-year statute of limitations because the selection occurred more than six years before the 2007 lawsuit.
- The District Court also found that no 'significant change in circumstances' had occurred within the limitations period that would have triggered a new duty to review the 1999 funds.
- The petitioners appealed the dismissal of the claims related to the 1999 funds to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit affirmed the District Court's decision, holding that the claims were untimely as the 'last action constituting a part of the breach' was the initial selection of the funds in 1999.
- The Supreme Court of the United States granted certiorari to review the Ninth Circuit's judgment.
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Issue:
Does an ERISA fiduciary's duty of prudence include a continuing duty to monitor investments and remove imprudent ones, such that a claim for breach of this duty is timely if the failure to monitor or remove occurred within the six-year statutory limitations period, even if the initial investment selection was made outside that period?
Opinions:
Majority - Justice Breyer
Yes. An ERISA fiduciary has a continuing duty to monitor investments and remove imprudent ones that is separate from the initial duty to prudently select them. The Ninth Circuit erred by focusing exclusively on the initial act of selecting the funds as the sole trigger for the six-year statute of limitations. Drawing from the common law of trusts, the Court explained that a trustee's duty of prudence is not a one-time event but an ongoing obligation. A trustee must systematically review trust investments at regular intervals to ensure they remain appropriate. Therefore, a breach of fiduciary duty can occur not only at the initial selection but also through a subsequent failure to monitor and remove an investment that has become imprudent. A claim based on such a failure is timely if the breach of the continuing duty occurred within the six years prior to filing the lawsuit, regardless of when the investment was first selected.
Analysis:
This decision significantly clarifies the scope of a fiduciary's duty and the application of ERISA's statute of limitations. It establishes that the duty of prudence is not static but continuous, preventing fiduciaries from using the statute of limitations as a shield for passively maintaining imprudent investments chosen long ago. By grounding the analysis in traditional trust law, the Court reinforces that ERISA fiduciaries are held to a high, ongoing standard of care. This ruling empowers plan participants to challenge stale, high-fee investments and will likely lead to more diligent and regular reviews of investment lineups by plan sponsors to avoid liability for breach of this continuing duty.
