Author, Donna Edwards, Atlanta, +1 404 572 2701, dedwards@kslaw.com.
ERISA Section 413 generally sets forth a six year statute of limitations for bringing claims for fiduciary breach. On October 2, 2014, the Supreme Court granted certiorari in Tibble v. Edison International to decide whether a claim that a plan fiduciary breached its duty of prudence in selecting plan investments is barred when the fiduciary initially chose the investments more than six years before the claim was filed.
Background
The plaintiffs in Tibble are participants in a nearly $4 billion 401(k) plan which offers a "menu" of possible investment options, including certain "retail class" mutual funds similar to those offered to the general public. Retail class funds typically have higher administrative fees than alternatives available only to institutional investors. Plaintiffs alleged in relevant part that inclusion of the higher-fee retail class funds had been imprudent when lower-fee institutional funds had been available.
District Court Opinion
The district court granted summary judgment to the defendants on this issue, holding that the ERISA statute of limitations barred recovery for claims arising out of investments included in the plan more than six years before the plaintiffs filed suit.
The plaintiffs argued that the district court erred by measuring the timeliness for claims alleging imprudence in plan design from when the decision to include the investments in the plan was made. Instead, the plaintiffs asserted, the claims are timely for as long as the investments remain in the plan.
Ninth Circuit Opinion
The Ninth Circuit Court of Appeals affirmed the district court's holding on this point, concluding that the act of designating an investment for inclusion starts the six-year period under ERISA Section 413 for claims asserting imprudence in the design of the plan menu. The court reasoned that the plaintiffs' argument "confuse[s] the failure to remedy the alleged breach of an obligation, with the commission of an alleged second breach, which, as an overt act of its own, recommences [the] limitations period." However, the court acknowledged that changed circumstances could occur during a limitation period which would result in a new duty to conduct a full review of existing funds.
The Solicitor General's Views
The Solicitor General filed an amicus brief with the Supreme Court on behalf of the United States urging the Court to grant review on the statute-of-limitations issue. The Solicitor General argued that the Ninth Circuit erred in concluding that the plaintiffs' claim was time-barred because plan fiduciaries have a continuing duty to review plan investments and eliminate imprudent ones. The Solicitor General noted that under the Ninth Circuit's rule, fiduciaries would have no incentive to monitor and update plan investments, and they could retain imprudent investment options forever (absent changed circumstances) once the investment options have been available for more than six years. The Solicitor General also noted that the courts of appeals are in disagreement on this question.2
The Supreme Court's decision in this case will be important to ERISA fiduciaries because it will address whether a theory of "continuing violation" can be used to extend ERISA's limitations period and thus expose ERISA fiduciaries to increased risk for past actions.
1The Employee Retirement Income Security Act of 1974, as amended.
2The Solicitor General noted that the Fourth and Eleventh Circuits agree with the Ninth Circuit, while the Second and Seventh Circuits recognize that ERISA imposes on fiduciaries an ongoing duty to manage assets prudently, including a duty to remove previously-chosen plan investments if it is not prudent to maintain them.
