Attorneys who represent defined contribution plan sponsors and DC plan consultants say the U.S. Supreme Court's recent decision in Tibble et al. vs. Edison International has created uncertainty for plan executives.
While the court's unanimous ruling reaffirmed and clarified what plan executives should have been doing all along — continuously monitoring investments — it didn't establish guidelines for that monitoring, they said.
The court sent the case back to a federal appeals court to outline standards. “We express no view on the scope of (Edison's) fiduciary duty in this case,” the court said in its 9-0 decision issued May 18.
“The court is continuing to make it unclear what fiduciaries are supposed to do,” said Jeremy Blumenfeld, a Philadelphia-based partner at Morgan Lewis & Bockius LLP. “If the fiduciaries had specific guidelines, they would do it.”
Other attorneys said the decision highlights that fiduciaries' inconsistent monitoring and inadequate record keeping are a prescription for trouble.
“Amateur hour is over,” said James P. McElligott Jr., a Richmond, Va.-based partner for McGuire Woods LLP.
“The court is saying you need to look at investments in a serious way,” he added. “Investment committees need to know their investments. You need some strong, competent independent advisers. You need documentation.”
Mr. McElligott said the need for action is heightened by the ruling that fiduciaries' responsibilities aren't restricted by an ERISA six-year statute of limitations for suits alleging breach of fiduciary duty. “You can't set it and forget it,” he said.
The Supreme Court has told fiduciaries “to take seriously their responsibility in time and in effort,” said Nancy Ross, a Chicago-based partner for Mayer Brown LLP. “For some plans, that's a wake-up call. For others, it's a reminder.”
Ms. Ross said the decision could encourage more fiduciary-breach lawsuits. “The plaintiffs' bar could see this as a back-door entry to challenge plan operations,” she said.
Although the Tibble case focused on fees for plan options, “prudent fiduciaries will look at the instructions by the court as meaning more than a duty to monitor investments,” she said. “Smaller plans will be the most affected. They may have to start from scratch to make sure they document their (monitoring) process. Larger plans will have to fine-tune the process.”