Failing to remove an imprudent investment may constitute a fiduciary breach separate from the selection of the investment. In Tibble v. Edison, the Supreme Court on Monday unanimously confirmed this longstanding view of many ERISA experts.
In Tibble, the court considered whether the time limit on bringing a breach of fiduciary duty claim runs from the time an investment is selected versus a later date, when the plan fiduciary fails to remove the investment. The lower courts had held the time limit runs from the date of selection. The Supreme Court disagreed, holding that fiduciaries must exercise a “continuing duty of prudence” in monitoring existing plan investments.
The Supreme Court remanded this case for the lower court to consider whether a breach occurred now that the claim is not barred by time. The lower court will now have to determine if the failure to remove higher cost mutual fund share classes from the plan’s investment menu constitutes a fiduciary breach and what corresponding liability, if any, the plan fiduciary has.
This case is significant for anyone responsible for selecting and monitoring a tax-qualified plan’s investments. It confirms that the duty to monitor investments is ongoing and plan fiduciaries may be liable for losses incurred from the failure to remove imprudent investments.
Plan fiduciaries responsible for monitoring should understand this ongoing duty exists regardless of the prudence exercised at the time of selection or their role in the selection. They can ensure this responsibility is met by following a process that involves regularly reviewing the prudence of plan investments and removing those that do not meet the plan’s investment criteria.
To read the U.S. Supreme Court ruling, click here.
If you have any questions about this development, please contact your Warner employee benefits attorney.
