ERISA Lessons Learned from Tibble v. Edison

by Dale Conder, Jr.

The Supreme Court gives sponsors of 401(k) plans a wake-up call.

The Employee Retirement Income Security Act governs—as its name implies—retirement plans of your employees. ERISA imposes a duty on fiduciaries to act in the best interest of the plan’s participants. The term “fiduciary” under ERISA includes plan sponsors and decision makers; an employer who sets up a retirement plan for the benefit of its employees is a plan sponsor. Hence, the employer owes a fiduciary duty to the plan’s participants. If the employer breaches the fiduciary duty, ERISA provides a cause of action against the employer, but the lawsuit must be filed “no more than six years after the date of the last action which constituted a part of the breach or violation . . . .” 29 U.S.C. § 1113. In legal parlance this is a six-year statute of limitations. And this leads us to the Supreme Court’s 2015 decision in Tibble v. Edison Intern.

Background on Tibble v. Edison Intern.

In Tibble, the beneficiaries of the employer’s 401(k) plan sued for damages they claimed were caused by the employer’s breach of the fiduciary duty. Under the defined-benefit plan, the participants’ retirement benefits equaled the value of each participant’s individual account less expenses. And the expenses associated with these accounts can significantly affect the value of the retirement account. The beneficiaries claimed that in 1999 and 2002, the plan sponsors “acted imprudently by offering six higher priced retail-class mutual funds as . . . investments when materially identical lower priced institutional-class mutual funds were available . . . .” The lower price would have led to less administrative expenses, thus increasing the value of the accounts. And by not offering the lower-priced funds the plan sponsor breached its duty as a fiduciary.

The beneficiaries filed the lawsuit in 2007. The trial court held that the six-year statute of limitations barred the claims as to the funds added in 1999. The court also held that nothing occurred in the six years before the beneficiaries filed their lawsuit that would have caused a prudent fiduciary to undertake a full due-diligence review of the 1999 funds. The court did agree, however, that with respect to the 2002 funds the plan sponsor failed to offer a credible explanation as to why it offered the retail-class funds that cost the beneficiaries unnecessary administrative fees. The Ninth Circuit agreed with the trial court that the beneficiaries’ lawsuit as to the 1999 funds was filed too late. In other words, the plan sponsor selected the 1999 funds more than six years before they sued. The Supreme Court reviewed the case to determine if the Ninth Circuit applied the correct standard. The Supreme Court held that the Ninth Circuit erred in the standard that it applied.

The Court’s explanation of the extent of the fiduciary duty increases the exposure for employers.

According to the unanimous Supreme Court, the Ninth Circuit’s error was in not recognizing that trust law requires a fiduciary “to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.” ERISA requires a fiduciary to “discharge his responsibility ‘with care, skill, prudence, and diligence’ that a prudent person ‘acting in a like capacity and familiar with such matters’ would use.” And courts are to look to trust law to determine if the fiduciary has satisfied the duty. And this is where employers as plan sponsors have some risk.

Trust law does not permit a fiduciary to discharge his duty by simply making wise choices on the front end as to which funds to include in a plan. The trustee has a “continuing duty to monitor trust investments and to remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” The decision to include an investment might be prudent, but circumstances can dictate that it is no longer prudent to keep that investment. And by systematically monitoring the investments at regular intervals, the trustee can determine if any of the investments are no longer appropriate. Any imprudent investments must then be removed. The Court did not offer an opinion as to whether the plan sponsor fulfilled its duty and sent the case back to the Ninth Circuit for that determination.

How does this affect employers?

Some have warned that Tibble exposes employers to liability beyond the six-year statute of limitations. This, however, is not correct; it does make clear that the beginning of the six-year period is not a one-time thing. The six-year period can start anew if there are circumstances showing that the plan sponsor failed in its fiduciary duty to remove a fund from the plan once it becomes imprudent to keep it. And this is the wake-up call to employers. Employers cannot simply shift this fiduciary duty to a third party. If an employer contracts with a third party to fulfill the duty to continually monitor the plan, it must perform its due diligence in selecting this entity. In short, employers must be aware of this duty to continually monitor the retirement plans and put in place processes for fulfilling this duty.

Did the plan beneficiaries ultimately win following the Supreme Court’s decision?

What the Supreme Court did not do in Tibble is as important as what it did. What it did not do is determine that the plan sponsor breached its fiduciary ongoing duty to monitor the funds. This was for the lower courts to decide. But the lower courts never reached that issue.

The problem for the plan’s beneficiaries was that the Ninth Circuit held that the beneficiaries did not raise in the lower court their claim that the plan sponsor breached its ongoing duty to monitor the funds. Because this breach-of-an-ongoing-duty-to-monitor issue was not raised in the trial court, the beneficiaries waived it on appeal: case over!


Under ERISA plan sponsors have an ongoing duty to monitor the plan’s funds to see that the decisions to include funds are still in the best interest of the beneficiaries. And a failure to fulfill this duty resets the running of the six-year period for filling the lawsuit. But at the end of the day this did the Tibble plaintiffs no good. They won the battle, but lost the war. Perhaps the sponsor breached its duty—and many in the investment world have said so—but the beneficiaries did not get the damages relief they sought as to the 1999 funds because of a failure to raise the argument at trial.


Dale Conder, Jr., Attorney Rainey, Kizer, Bell & Reviere PLC dconder

Dale Conder, Jr., Attorney
Rainey, Kizer, Bell &
Reviere PLC