Castle Rock Investment Company wanted to update you on a recent significant Supreme Court case. Last month, the United States Supreme Court issued a unanimous decision (9-0) in Tibble v. Edison International, ruling that plan sponsors are not only responsible for reviewing retirement plan investments but that they also have a “continuing duty to monitor trust investments and remove imprudent ones.” This decision was in favor of a 401(k) plan participant and overturned a previous ruling of the 9th Circuit of Appeals that was in favor of Edison International.
The ruling declared that the company’s fiduciaries did not uphold their responsibility to monitor three higher-cost retail mutual funds, when “materially equivalent and cheaper institutional shares existed.” Basically, the plan kept higher-cost retail class funds when lower-cost wholesale class versions of those funds were available. This resulted in the participants unnecessarily paying higher fees.
To sum up the case, Justice Stephen Breyer wrote, “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.”
This case has huge implications for plan sponsors, plan fiduciaries, and the entire industry. It could open the door for more claims that fiduciaries failed to properly monitor plan investments. However, the Court did not go into detail on what fiduciaries’ monitoring duties actually entail, so future implications remain somewhat uncertain. What can be gleaned from it is that fiduciaries have the responsibility to periodically monitor their plans’ investments.
If you have any questions or comments on the implications of this case, please feel free to contact Castle Rock Investment Company at 303-725-7086.