In a highly anticipated decision concerning 401(k) excessive fee litigation, the U.S. Supreme Court ruled in favor of the plaintiffs in Tibble v. Edison, Int’l, No. 13-550, vacating the lower court’s decision that had found certain of the plaintiffs’ excessive fee claims time-barred under ERISA’s six-year statute of limitations. Previous developments in Tibble were discussed in our March 28, 2013 and September 29, 2014 ELUs.
Filed in 2007 in the U. S. District Court for the Central District of California, the Tibble suit, among other things, challenged the use of retail share classes of mutual funds that paid revenue sharing in a large 401(k) plan. Plan participants specifically challenged three funds that had been added to the plan in 1999 and three funds that had been added in 2002. With respect to the funds added to the plan in 2002 - within the limitations period - the district court entered judgment for the plaintiffs, finding that the defendant fiduciaries breached their fiduciary duties where they could offer no credible explanation for offering retail share class mutual funds when institutional share classes were available. The district court held that the plaintiffs’ claims concerning the funds selected more than six years prior to suit were time-barred, and that the plaintiffs failed to demonstrate that a prudent fiduciary would have undertaken full due-diligence review of the funds as a result of alleged changed circumstances.
The U.S. Court of Appeals for the Ninth Circuit affirmed. With respect to the three funds added outside the limitations period, the Ninth Circuit held that the plaintiffs’ claims were untimely because they had not established a change in circumstances that might trigger an obligation to review and to change the investments within the limitations period.
The plaintiffs petitioned the U.S. Supreme Court for a writ of certiorari and in October 2014, the Supreme Court granted certiorari on the following question: “Whether a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by 29 U.S.C. § 1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.”
After merits briefing and oral argument, on May 18, 2015, the Supreme Court vacated and remanded the case. The Court ruled unanimously that the Ninth Circuit erred when it applied ERISA’s statute of limitations to breach of fiduciary duty claims based on the initial selection of investments without considering that the fiduciaries had a separate, continuing duty derived from trust law to monitor plan investments and to remove imprudent funds. In so ruling, the Court declined to define the scope of an appropriate ongoing investment review, but noted that the nature and timing of such review would be contingent on the circumstances. The Court remanded the case to the Ninth Circuit to consider the plaintiffs’ claims that the fiduciaries breached their duties within the six-year limitations period.