On April 13, 2016, in Tibble v. Edison Int'l, on remand from the Supreme Court, the US Court of Appeals for the Ninth Circuit held that the plaintiffs forfeited their ongoing duty to monitor argument raised before the Supreme Court by failing to previously raise it before the district court or the Ninth Circuit during their initial appeal ( (9th Cir. Apr. 13, 2016)).

Current and former employees of Edison International's 401(k) plan sued the plan's fiduciaries (Edison) under the Employee Retirement Income Security Act of 1974 (ERISA), claiming that they breached their fiduciary duties to the plan by imprudently managing and failing to properly monitor plan investments (see Practice Note, ERISA Fiduciary Duties: Overview). Specifically, the plaintiffs alleged that Edison breached its fiduciary duty by adding and not removing three retail class mutual funds when it became aware that materially identical institutional mutual funds with lower expense ratios were available.

The district court found that the plaintiffs' claims regarding the three funds added in 1999 were time-barred because they were added to the plan more than six years before the complaint was filed in 2007. (ERISA Section 413 (29 U.S.C. § 1113) establishes a six-year statute of limitations for breach of fiduciary claims.) Granting partial summary judgment, the district court reasoned that there is no continuing violation theory to claims subject to ERISA's statute of limitations. The district court further held that the plaintiffs had not met their burden of showing that, in light of changing circumstances, a prudent fiduciary had an obligation to review the inclusion of retail funds in the plan's investment lineup and replace them with lower-cost institutional funds.

On appeal, the Ninth Circuit affirmed the district court's holding that the timeliness of these claims under ERISA's six-year statute of limitations is measured from the moment the challenged investments were added to the plan (see Legal Update, Ninth Circuit Joins Circuit Splits in ERISA Section 404(c) Opinion and Defers to DOL Interpretation of Safe Harbor: ERISA's 6-year Statute of Limitations Begins When Challenged Investments Initially Chosen). The Ninth Circuit upheld the district court's decision that the plaintiffs' claims were time-barred because they failed to show that, in the six-year statutory period, a change in circumstances occurred that would have imposed an obligation on Edison to review and replace the retail-class mutual funds with the lower-priced institutional funds. The plaintiffs filed a petition of certiorari with the Supreme Court.

In a unanimous decision, the Supreme Court vacated the Ninth Circuit's judgment and remanded the case for further proceedings.

According to the Supreme Court, the Ninth Circuit held, incorrectly, that only a significant change in circumstances creates a fiduciary duty to undertake a full review of the plan's investment funds. The Ninth Circuit erred because it applied ERISA's six-year statute of limitations to the breach of fiduciary duty claim without considering the scope of an ERISA fiduciary's duty of prudence, and, specifically, the continuing nature of the fiduciary duty to monitor plan investments and remove imprudent investments. The Supreme Court held that the continuing duty to monitor exists separate and apart from the duty of prudence that applies at the time investments are selected. Fiduciaries must consider all plan investments at regular intervals, and the Supreme Court cited several trust law authorities in support of this rule. Therefore, ERISA plan fiduciaries have a continuing duty to monitor plan investments and remove imprudent ones.

(For more information, see Legal Update, Supreme Court Holds that ERISA's Six-Year Statute of Limitations Triggered by Continuing Duty to Monitor.)

The Supreme Court's opinion expressed no view on the scope of Edison's fiduciary duty of prudence, and remanded the case to the Ninth Circuit to: