Reporting for Duty: What the Tibble Ruling Means for Retirement Plan Advisors

Reporting for Duty: What the Tibble Ruling Means for Retirement Plan Advisors

The Supreme Court’s bombshell decision on Tibble v. Edison in late May elicited its fair share of confusion and commentary, but it was really simply a procedural ruling involving the six-year time frame from when the suit was originally filed. Nonetheless, it has major implications for interested 401(k) parties, retirement plan advisors included.

By nixing the six-year statute of limitations, the Court agreed with plaintiffs that although the original investment was beyond the time limit to bring suit for breach of fiduciary responsibility, Edison still had a fiduciary responsibility under ERISA to monitor the plan’s appropriateness and fees as ongoing investments were made.

“The Court makes it clear that the duty to monitor is a fiduciary obligation distinct from an initial investment decision, and the contours of that separate fiduciary duty depends on the facts and circumstances prevailing at any given point in time,” wrote Hallie Goodman and John Nichols of law firm Gray Plant Moody. “Equally clear from the Court’s decision is that failing to monitor at all is no longer an option, if it ever was.”[1] 

This “duty to monitor” is the crux of the case and, as often happens, the decision raises more questions than it answers.

For instance, what exactly does this scope of duty entail?

“One of the issues that remains unanswered in Tibble is the extent to which fiduciaries must monitor investment fees,” legal website jdsupra.com stated. “For example, it is one thing to require fiduciaries to monitor whether a plan offers a mutual fund at the lowest cost available for that particular fund. It is quite another undertaking, however, to require fiduciaries to monitor the market on an ongoing basis to determine whether some non-identical but comparable fund might be available for an even lower price.”[2]

Helping to determine where that duty to monitor falls will undoubtedly fuel future litigation. Imagine the time and expense required to monitor every cheaper fund product that comes to market that is similar to what’s currently offered in the plan.

Putting clients first was the reason ERISA was originally passed, and a strong fiduciary adherence is the overriding goal for the vast majority of retirement plan advisors. How it’s done, and how far advisors are expected to reasonably go in attempting to achieve their fiduciary objective, is now front and center. Pressure that’s been building over the past 10 years of baby boomer retirement is now at a boiling point. Regulators notice, tort lawyers notice, and now so too does the highest court in the land.

“[The] Tibble decision underscores the need for periodic, diligent review of plan investments, and as with all fiduciary activities, documentation of both decisions to take or not take action,” Goodman and Nichols conclude.[3]

 


[1] “More than Meets the Eye - The Supreme Court Decides Tibble.”Employmentlawalliance.com. May 26, 2015.

[2] “Tibble v. Edison International Decision Finds Ongoing Duty to Monitor Investments in 401(k) Plans.” jdsupra.com. May 28, 2015.

[3] Ibib, Employmentlawalliance.com.

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