A Retirement Case You Should Not Ignore

The Employee Retirement Income Security Act (ERISA) regulates private employer retirement plans and does not apply to state and local government retirement plans. Tibble v. Edison International is an ERISA case. Before you dismiss it, note that it is an ERISA fiduciary duty case.

A lower court determining the precise nature of the fiduciary duty state and local governments owe employees under a state law similar to ERISA regulating public retirement plans may look to the Supreme Court’s opinion in this case. The Court held unanimously that employers have a continuing duty to monitor retirement investments and remove imprudent ones.  

Beneficiaries of Edison’s 401(k) plan sued Edison for violating its fiduciary duty by selecting mutual funds with higher fees than “materially identical” funds. Edison argued that the claims were untimely as to three mutual funds added outside of the six-year statute of limitations. The Ninth Circuit agreed with Edison reasoning that no change in circumstances triggered an obligation to review and change the investments within the six-year statute of limitations.

The Court concluded that the Ninth Circuit failed to recognize “that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.” So in this case as long as the breach of the continuing duty to monitor investments occurred within six years of the lawsuit it was timely. The Court applied trust law because courts frequently look to it to determine the contours of an ERISA fiduciary duty.

All parties ultimately agreed that trust law requires a continuing monitoring of investments but disagreed about the scope of the responsibility. The Court left this to the lower court to resolve.

Experts talking to the Los Angeles Times about the impact of this ruling disagree about whether it is really significant. But the bottom line on this case is simple:  in the ERISA context, employers are responsible on an ongoing basis to make sure that investments are prudent and that fees are reasonable as part of their fiduciary duty. State and local governments are wise to follow suit given their own fiduciary duty under state law.