Supreme Court Focusing on Retirement Responsibility

By Arthur Postal

A Supreme Court ruling Monday indicates that the court is keenly interested in ensuring that beneficiaries of retirement accounts are treated fairly and the people who administer those accounts constantly monitor them.

In Tibble v. Edison International, the court held that the 9th Circuit Court of Appeals incorrectly applied a six-year statute of limitations on an employer’s administration of a retirement account based solely on the initial selection of the three relatively expensive funds.

Instead, the court ruled, the plan’s administrator must continually monitor funds once they are in a 401(k) plan.

“ERISA’s fiduciary duty is derived from the common law of trusts,” Justice Stephen Breyer said in a rare unanimous opinion by the court.

Breyer said the applicable law provides “that a trustee has a continuing duty — separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove, imprudent trust investments.”

Breyer added that, “So long as a plaintiff’s claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely.”

Stephen W. Kraus, a partner in the employee benefits unit of Carlton Fields Jorden Burt Washington office, noted that the court did not rule on the extent of the employer’s fiduciary duty, but sent the case back to the 9^th Circuit Court of Appeals for consideration of that issue.

These questions were whether the employer violated his fiduciary duty by offering plan participants higher-priced, retail share classes of mutual funds when there were identical lower-priced institutional share classes available. A second question sent back to the 9th circuit was whether the participants in the plan were charged excessive fees and were led to believe that the employer was paying administrative fees for the plan.

The Wagner Law Group in Boston said in an advisory that the Tibble decision is a clear victory for plaintiffs, because the Supreme Court has confirmed that the six-year statute of limitations is not an absolute bar to a legal action for fiduciary breach in the selection of investment options.

Wagner suggested that plan advisers keep abreast of further developments in Tibble and determine the practical steps their plan sponsor clients will need to undertake in order to ensure that the duty to continually monitor plan investments is met.

“Plan sponsors should seek input from their advisers and conduct, as well as document, investment reviews in accordance with standards that are now set to evolve,” she said.

At the same time, Kraus cautioned that the decision gives no hint as to how the Supreme Court would rule on the Department of Labor’s proposed heightened fiduciary standard under ERISA even it was adopted in its present form.

Kraus said the Monday decision dealt with someone who was already a fiduciary, and that the Supreme Court sent back to the 9th Circuit other questions raised by the plaintiffs.

By contrast, the DOL proposal deals with claims, as cited in the proposal’s preamble, that, in implementing the Employee Retirement Income Security Act (ERISA), DOL officials in 1975 significantly narrowed Congress’ intent as to whom would be considered a fiduciary, Kraus cautioned.

“I don’t think this gives any insight into what the Supreme Court thinks of the new DOL proposal,” Kraus said.

But, Kraus said, the Supreme Court decision does open the possibility for plan beneficiaries to sue by alleging that employers violated their fiduciary duty to monitor investments within the six-year statute of limitations period.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].