Supreme Court Expands Fiduciary Responsibilities for Plan Sponsors

Supreme Court Expands Fiduciary Responsibilities for Plan Sponsors

In a far-reaching unanimous ruling issued today, the Supreme Court ruled in favor of participants in employee retirement plans who sued claiming that the plan sponsors violated their fiduciary duty by including higher cost “retail class” funds instead of identical investments with lower cost “institutional shares” open only to institutional investors.  The ruling (Tibble v. Edison International, 13-550) overturns a lower court’s ruling that was dismissed that the employee claims under ERISA said that the lawsuit was filed too late to contest the original fund selections.

In the opinion released today, Justice Stephen Breyer wrote “People in charge of investment options have an ongoing responsibility to monitor the situation.  The continuing duty to review investments includes a duty to remove imprudent investments.”  The appeals court had previously ruled that executives had a fiducary duty to reconsider the plan options only if there was a “significant change in circumstances”.

“An ERISA fiduciary must discharge his responsibility “with the care, skill, prudence, and diligence” that a prudent person “acting in a like capacity and familiar with such matters” would use.”

Breyer cites Trust law in stating ‘[A] trustee’s duties apply not only in making investments but also in monitoring and reviewing investments, which is to be done in a manner that is reasonable and appropriate to the particular investments, courses of action, and strategies involved.”

The ruling vacated the Ninth Circuit Court’s ruling and requires them to review the case taking the quoted Trust law into account.

The entire ruling can be read at SupremeCourt.gov.