In a unanimous decision, the Supreme Court has ruled in favor of participants in Edison International’s 401(k) plan who claimed company fiduciaries violated their duty to monitor three retail-class mutual funds.
The decision in Tibble vs. Edison International overturns the ruling of the 9th Circuit Court of Appeals, which upheld a ruling from U.S. District Court for the Central District of California in favor of Edison.
“ERISA’s fiduciary duty is derived from the common law of trusts, which provides that a trustee has a continuing duty–separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove imprudent, trust investments,” wrote Justice Stephen Breyer, who delivered the opinion for the court.
The question before the court was whether the plaintiffs’ claim against three retail-class mutual funds Edison added to its investment lineup in 1999 constituted a fiduciary breach, because materially equivalent and cheaper institutional shares existed.
With respect to three other retail-class funds added in 2002, the lower courts found Edison in breach of its fiduciary duties for adding the more expensive investment options.
The District and Appellate court rulings dismissed the claims against the three funds added in 1999 on the grounds that they were not timely; one part of ERISA’s statue of limitation says that claims must be brought within six years of the alleged fiduciary breach. Edison participants brought their claim in 2007, eight years after Edison fiduciaries added the first three retail-class funds in 1999.
Plaintiffs’ counsel, led by attorneys from St. Louis-based Schichter, Bogard and Denton, argued all along that ERISA’s statue of limitation requires fiduciaries to prudently monitor their investment selections, and that the six-year limit to make a claim begins at the last point fiduciaries proved to have not prudently monitored the investments, not at the time the investments were first chosen.
When accounting for that component of ERISA’s statue of limitations, the plaintiffs’ claim in Tibble vs. Edison came well before the six-year limit expired.
The Supreme Court agreed.