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Supreme Court Confirms Duty to Monitor Investments

Plan sponsors and other fiduciaries will want to take note of a recent U.S. Supreme Court decision, Tibble v. Edison International,* in which the Court held that plan fiduciaries have a continuing duty to monitor the investment choices offered in a 401(k) plan.

In Tibble, participants in a company’s 401(k) plan alleged that the plan fiduciaries had breached their duties by adding to the plan certain mutual funds with unnecessarily high administrative fees. In response, the defendants asserted that any claims related to three of the funds were time-barred because the participants failed to bring their lawsuit within the required time frame after the funds had been added to the plan.

The Court held that under trust law (and therefore ERISA pension law) a “trustee has a continuing duty to monitor trust investments and remove imprudent ones.” The Court further held that the duty to monitor is separate from the duty to prudently select investments, and that for claims based on the former, the statute of limitations runs from the date of the breach, rather than the date of selection.

Though declining to speak further to the specific scope of the defendants’ duty to monitor, the Court did state that “under trust law, a fiduciary is required to perform a regular review of its investment with the nature and timing of the review contingent on the circumstances.”

As a result, plan fiduciaries may want to establish a procedure to make sure they are regularly reviewing plan investment options, diligently following up on any recommendations, and documenting any actions taken.

* 135 S. Ct. 1823 (2015)

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