The Supreme Court heard arguments Tuesday in a case questioning how to interpret the Employee Retirement Income Security Act's six-year statute of limitations on fiduciary breach lawsuits.
Following arguments in Tibble et al. vs. Edison International et al., several justices questioned what fiduciaries of a 401(k) plan should be monitoring and how often.
Plaintiffs in the case have argued that fiduciaries have an ongoing duty, regardless of when the initial investment was chosen, and that they should have chosen institutional funds over higher-fee retail funds. “Tell me in a way that includes this case but isn't limited to this case, on a continuing basis, what is a trustee supposed to do?” asked Justice Elena Kagan.
“Three things,” answered plaintiff's attorney David Frederick of the Washington law firm Kellogg, Huber, Hansen, Todd, Evans & Figel. “One, look at the performance on a regular basis … No. 2, look at the expenses and determine is there a cheaper way to get the same investment … and has there been an alteration in the management.”
“We felt very good that the justices listened,” said Jerome J. Schlichter, managing partner of law firm Schlichter, Bogard & Denton, in an interview after the arguments.
“The Supreme Court by the nature of their questioning agreed that there is some obligation to monitor. I don't think this changes much about what a fiduciary should do,” said Jamie Fleckner, a partner with law firm Goodwin Procter. “The justices will now have to wrestle with whether to send it back” to the lower court. “Fiduciaries need to be cognizant that there is an ongoing duty to monitor, but what that ongoing duty entails I don't think we got clarity today.”
While no one disputes that ERISA creates an ongoing duty to monitor, this case “is going in the back door to argue that the duty to monitor means that you have to constantly revisit decisions made years ago,” said attorney Nancy Ross, a partner in Mayer Brown's employment and ERISA litigation practice.
A decision is expected before summer.