The Supreme Court’s decision in Tibble v. Edison International, while not necessarily game-changing for 401(k) plan sponsors, does put the burden of obligation on plan fiduciaries to continually monitor investments in their employer-sponsored retirement plans.

The court did not expound on what this duty to monitor entails, however, which is a bone of contention for ERISA attorneys across the country. It remanded the case back to the lower courts to decide.

“Although the Supreme Court in Tibble states the obvious in that there is a fiduciary duty to prudently monitor all plan decisions, this narrowly focuses on investments,” says Nancy Ross, a partner with Mayer Brown in Chicago. “When the Supreme Court speaks, people listen. People will give this much more import perhaps than even the Supreme Court meant.”

The case initially was filed in 2007 by Glenn Tibble and other petitioners who claimed that their employer, Edison International, offered them higher cost retail-class shares of six mutual funds when identical, lower-cost institutional shares were available. At issue before the Supreme Court was whether Tibble and the others could sue for investment decisions that were made more than six years before the lawsuit was filed.

The lower courts ruled that the petitioners could only sue over three of the investment funds because they fit within the Employee Retirement Income Security Act’s six-year statute of limitations to file a claim.

Not enough assets

What’s interesting about the Tibble case is that Edison International’s plan didn’t have enough assets to qualify for the institutional share classes, says Brian Netter, a partner in Mayer Brown’s appellate and Supreme Court practice in Washington, D.C.

The trial court “concluded it was a breach of fiduciary duty not to offer lower cost funds even though based on the published terms of those funds, Edison was not eligible for institutional share classes,” Netter says. “If Edison had gone to the company and asked for a waiver of the minimum asset balance, such a waiver would have been granted and that’s where the liability would be found.”

The District court found that participants were harmed based on this wrongful decision made within the previous six years. The District court and Appeals court both affirmed that the plaintiffs could not make claims on the investments that fell outside of that six-year window, even if participants were harmed because of that decision, Netter adds.

“The real impact of this, in my view, is that it is a good reminder that you do need to sharpen your pencils. You do need to look at the processes you are using both in the selection process and in the monitoring process,” Ross says. “The test is going to be what are your reasonable peers and colleagues doing and what would they do? We know the duty to monitor requires something less than what is involved with the selection process. We don’t know what that is. We don’t know how often a fiduciary is obligated to monitor investments. We don’t know the scope of that monitoring. The main takeaway from this is fiduciaries can’t be on auto pilot and they need to be able to show due diligence in the selection process and in the ongoing monitoring process.”

No one-size-fits-all solution

Because all plans are different — different sizes and different make-up — it is not a one-size-fits-all situation.

Ross believes that because the Supreme Court left it up in the air what that duty to monitor is, there will be many lawsuits on this topic.

“I would expect in the aftermath of Tibble that plan fiduciaries will become a lot more attentive to their monitoring obligations. We will start to see a lockdown of processes that demonstrate and document the procedural prudence that individual fiduciaries are undertaking,” Netter says.

It’s about being thorough and vigilant, Ross adds. If plan sponsors keep that in mind it will protect them from becoming a target of litigation in the first place.

“You go back and make sure you have a contemplative, well-documented review process that is being followed,” she says.

Paula Aven Gladych is a freelance writer based in Denver.

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