In Tibble v. Edison International, No. 13-550 (U.S. Supreme Court 2015), in 2007, the plaintiffs, beneficiaries of the Edison 401(k) Savings Plan (the “Plan”), sued Plan fiduciaries, defendants Edison International and others, to recover damages for alleged losses suffered by the Plan from alleged breaches of the defendants’ fiduciary duties. The plaintiffs argued that the defendants violated their fiduciary duties with respect to three mutual funds added to the Plan in 1999 and three mutual funds added to the Plan in 2002. They argued that the defendants acted imprudently by offering these six higher priced retail-class mutual funds as Plan investments, when materially identical lower priced institutional-class mutual funds were available.
Because ERISA requires a breach of fiduciary duty complaint to be filed no more than six years after “the date of the last action which constitutes a part of the breach or violation” or “in the case of an omission the latest date on which the fiduciary could have cured the breach or violation,” under section 413 of ERSA, the District Court held that the plaintiffs’ complaint as to the 1999 funds was untimely because they were included in the Plan more than six years before the complaint was filed, and the circumstances had not changed enough within the 6- year statutory period to place the defendants under an obligation to review the mutual funds and to convert them to lower priced institutional-class funds. The Ninth Circuit affirmed, concluding that the plaintiffs had not established a change in circumstances that might trigger an obligation to conduct a full due diligence review of the 1999 funds within the 6-year statutory period.
Upon its review of the case, the U.S. Supreme Court held that the Ninth Circuit erred by applying section 413’s statutory bar to a breach of fiduciary duty claim based on the initial selection of the investments without considering the contours of the alleged breach of fiduciary duty. ERISA’s fiduciary duty is “derived from the common law of trusts, which provides that a trustee has a continuing duty–separate and apart from the duty to exercise prudence in selecting investments at the outset–to monitor, and remove imprudent, trust investments. So long as a plaintiff’s claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely.
As such, the Supreme Court remanded the case back to the Ninth Circuit to consider the plaintiffs’ claims that the defendants breached their duties within the relevant 6-year statutory period under section 413, recognizing the importance of analogous trust law.