The Supreme Court recently affirmed that retirement plan fiduciaries have an ongoing duty under ERISA to monitor investment options and the fees charged by them. This means that ERISA plan fiduciaries can be held liable if they fail to eliminate unsuitable investment options, such as those with imprudently high costs. To minimize the potential liability for breach of fiduciary duty, ERISA plan fiduciaries should take action to remove excessively costly investment options, even if the investment options were selected many years earlier by different plan fiduciaries, and should have a system in place to periodically review and compare existing investment options to available investment alternatives.

In Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015), the Supreme Court was faced with a breach of fiduciary duty lawsuit brought by 401(k) plan participants. The participants alleged that the plan fiduciaries breached their fiduciary duty by offering participants investment options that had higher fees than available alternatives, and that the fiduciaries further breached their fiduciary duty in later years by not removing the high-cost investments.

The Supreme Court did not reach a conclusion as to whether the fiduciaries’ failure to remove the investment was a breach of fiduciary duty but, instead, found that a breach may have occurred, explaining that 401(k) plan fiduciaries have a continuing responsibility to monitor investments and remove those that are imprudent. Interestingly, on this point of law, both the plan participants and the plan fiduciaries agreed. Where the parties did not agree was whether the continuing duty to monitor investments required a review of the contested investment funds and, if so, the extent of the review required. The lower court had ruled that because there was not a “significant change in circumstances,” the plan fiduciaries were not obligated to conduct a full and complete review of the investment options, and “only a significant change in circumstances could engender a new breach of a fiduciary duty.”

The Supreme Court was not persuaded by this logic. The fact that things were operating as status quo for the 401(k) plan did not excuse the plan fiduciaries from their duty to continually monitor the fees charged by plan investments. The Supreme Court explained that plan fiduciaries must “systematically consider all the investments…at regular intervals to ensure that they are appropriate,” and affirmed that the fiduciary duty to monitor investments is wholly separate and distinct from the duty to select prudent investments.

Unfortunately, the Supreme Court did not elaborate on the scope of review that should be undertaken by plan fiduciaries or how regularly investment options should be reviewed. Instead, the Supreme Court left these issues to be resolved by the lower courts. In spite of the open issues that remain unanswered in the Tibble decision, the ruling is very significant to plan fiduciaries because it expands plaintiffs’ ability to sue for breach of fiduciary duty. Under previous decisions by several circuit courts, plan fiduciaries could rely on ERISA’s statute of limitations to bar claims related to high-cost investments added to a 401(k) plan investment line up more than six years before a lawsuit was filed. However, under the Tibble ruling, fiduciaries can breach their fiduciary duty by failing to remove high-cost investments, regardless of the fiduciaries’ role in selecting the investments. Accordingly, it will be somewhat more difficult for plan fiduciaries to get these types of lawsuits dismissed in the future based on a statute of limitations defense.

The Tibble decision is largely a victory for participants wishing to sue plan fiduciaries, but there are some positive aspects for plan fiduciaries. For example, although the Supreme Court did not give any indication of how often plan fiduciaries should review investment options, the Supreme Court hinted that as long as there is not a “significant change in circumstances,” plan fiduciaries should not be required to conduct as thorough a review of investment options than if a significant change in circumstances occurs. In short, the Supreme Court acknowledged that the “sort of review” that should be undertaken by plan fiduciaries depends, in part, on whether there has been a significant change in circumstances.

Even more helpful to plan fiduciaries, the Supreme Court implicitly rejected a theory of “continuing breaches” that potentially would have enabled participants to seek recovery of losses related to actions that occurred outside the statute of limitations period. Because the Supreme Court clearly distinguished between the duty to monitor investments and the duty to select investments, any potential recovery for breach of duty to monitor investment will likely be limited to losses incurred during the statute of limitations period.

Although there is still much uncertainty surrounding the Tibble decision and how lower courts will implement its holdings, one thing is undeniably clear; plan fiduciaries must regularly monitor elements like the fees and costs charged by investment options on an ongoing basis and always be vigilant to identify and remove imprudent investment options that can be replaced with more suitable alternatives.