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Citing Requirement for Regular Review, Supremes Remand Tibble

Those looking for a bright line of illumination from the U.S. Supreme Court on fiduciary responsibilities in a 401(k) revenue-sharing case were likely disappointed May 18.

The case, Tibble v. Edison International, argued before the nation’s High Court on Feb. 24, dealt with the application of ERISA’s 6-year statute of limitations, specifically whether the initial decision to place certain retail class mutual funds on the plan menu in 1999 precluded a suit that challenged the prudence of that selection.

Both the district court and the 9th U.S. Circuit Court of Appeals had rejected that challenge, holding that the complaint was untimely since they had been put on the menu more than six years before the lawsuit, and that circumstances had not changed sufficiently since then to compel the plan fiduciaries to revisit that decision and replace them with institutional class funds.

The Supreme Court, invoking principles of a continuing duty of review found in the common law of trusts, rejected the conclusions of the lower courts, and sent the case back to the 9th Circuit for reconsideration.

Writing for the Court, Justice Breyer noted that the 9th Circuit’s decision stated that, “[c]haracterizing the mere continued offering of a plan option, without more, as a subsequent breach would render the statute meaningless and could even expose present fiduciaries to liability for decisions made decades ago.” But Breyer took issue with the 9th Circuit’s “jump” from “this observation to the conclusion that only a significant change in circumstances could engender a new breach of a fiduciary duty.”

Breyer pointed out that the 9th Circuit “did not 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.”

As for whether that omission in rationale would alter the outcome, that remains to be seen. Breyer acknowledged that, “…after the 9th Circuit considers trust-law principles, it is possible that it will conclude that respondents did indeed conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances.”

As for those hoping the Supreme Court would weigh in on the type and frequency of that review, Breyer noted that, “This Court expresses no view on the scope of respondents’ fiduciary duty in this case, e.g., whether a review of the contested mutual funds is required, and, if so, just what kind of review.”