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Fiduciaries Beware: Supreme Court Extends Duty to Monitor

In a very closely watched case within the employee benefits community, the US Supreme Court issued a unanimous opinion in Tibble v. Edison International that plan fiduciaries have an ongoing duty to monitor and take action if an investment in the plan becomes imprudent.  The decision, which remanded the case back to the Ninth Circuit for further review, stresses the importance of what the courts have called “procedural prudence” in administering a qualified plan such as a 401(k) or 403(b) program.

The case arose out of several plan participants and beneficiaries claiming that Edison’s 401(k) plan suffered losses by investing in six higher-priced retail mutual funds, instead of nearly identical funds in a lower-priced institutional class of shares. Edison won in the lower courts, arguing that ERISA’s six year statute of limitations was exceeded as the plaintiffs brought suit long after the retail-class funds had been added to the plan, and that no change in circumstances had required the plan fiduciaries to apply the same standard for maintaining the funds as it did when initially selecting them.  The Supreme Court reversed the lower courts, disagreeing with Edison, holding that no change in circumstances was necessary to trigger a duty to monitor, and that “a trustee has a continuing duty to monitor trust investments and remove imprudent ones.”

The takeaway?  First, be sure that a qualified plan has its fiduciary procedural processes in place, and follows them (and documents them!) on a regular basis.  Second, make sure that all fiduciaries are properly selected and trained in their duties.  Lastly, involve not just the plan sponsor but all fiduciaries, including investment advisers on a similar regular basis.  That’s the best way to ensure that if participants complain to their attorneys, or even to the DOL, the fiduciaries will have performed all of their duties correctly.

Posted on May 21, 2015 by Gary B. Kushner, SPHR, CBP, President and CEO

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