Court: Plan sponsors have fiduciary duty to monitor
Posted On: 6-4-2015 | Posted By: Debbie Mathes, CPA
The U.S. Supreme Court’s recent unanimous decision in Tibble v. Edison International is a reminder that fiduciary responsibility includes the duty to monitor the investments made for an employee benefit plan.
In the Tibble case, petitioners alleged that the California-based Edison International should have replaced three mutual fund options with others that were almost identical and less expensive, but they were turned back by the lower courts because their suit was not filed within the perceived statute of limitations.
The role of a fiduciary is active, not passive, and the courts have emphasized for a long time that to satisfy fiduciary duties under ERISA, fiduciaries are required to be inquiring, attentive and active. ERISA fiduciaries have a duty to conduct their own independent investigations of the plan’s investments, even when experts have been consulted.
In Tibble, the U.S. Supreme Court held that plan fiduciaries for all ERISA plans have a continuing duty – separate from the duty to exercise prudence in selecting investments – to monitor and remove imprudent investments.
The court did not expound on what this duty to monitor entails, so there is no safe harbor rule describing how to monitor, just as there is no ERISA section that requires fiduciaries to have investment guidelines. Satisfying a fiduciary’s duty to monitor depends on the specific facts and circumstances of each case.
Lower courts had held the litigation over the Edison plan’s funds exceeded a six-year ERISA statutory time limit. The Supreme Court ruled, however, that the six-year statute of limitations doesn’t start until the imprudent actions stop. This means, if imprudence is ongoing, there could be an unlimited statute of limitations.
Considering that possibility, fiduciaries should conduct a complete plan review and have a documented and procedurally prudent written process for all decisions concerning plan investments. It’s now more important than ever.