EBIA Weekly Newsletter

It’s Back: Fiduciaries Win Latest Ninth Circuit Decision in Tibble Case

   April 28, 2016

In 2007, the 401(k) plan participants in this case sued the plan’s fiduciaries, claiming that the fiduciaries breached their duties in connection with retail mutual funds added as investment options in 1999 and 2002. The trial court found the fiduciaries liable for not considering lower-cost institutional funds in lieu of the retail funds added in 2002, but rejected the participants’ claims regarding the funds added in 1999 because claims about the selection of those funds were untimely under ERISA’s six-year limitations period for fiduciary claims, and later events were insufficient to require a reevaluation of the funds (see our Checkpoint article). The Ninth Circuit affirmed, rejecting the participants’ argument that the 1999 investment selection claims could be made on a “continuing violation” theory so long as the investments remained in the plan (see our Checkpoint article). But the U.S. Supreme Court vacated the Ninth Circuit’s decision with respect to the 1999 selection, holding that, because fiduciaries have an ongoing duty to monitor plan investments, a claim alleging imprudent investment selection is not necessarily untimely simply because it is brought more than six years after the initial selection (see our Checkpoint article). The Supreme Court left it to the Ninth Circuit to determine whether the participants had forfeited their right to claim that the fiduciaries breached their ongoing duty to monitor plan investments and remove imprudent ones by not raising those claims earlier.

The Ninth Circuit has now affirmed the trial court’s decision for a second time, agreeing with the fiduciaries that the participants could not bring a “failure-to-monitor” claim because they did not make that argument until the case was at the Supreme Court. While the participants had made various other arguments about the 1999 selection (e.g., that “significant events” should have triggered a review of the 1999 selection), they had not previously argued that the fiduciaries failed to monitor plan investments after the investments were selected. And because the participants did not qualify for any exception to the general rule prohibiting arguments that were not presented or developed before the trial court, the failure-to-monitor argument was forfeited.

EBIA Comment: Although the fiduciaries in this case avoided liability for the 1999 fund selection, the case still serves as a reminder of the ongoing fiduciary duty to routinely monitor plan investment options and the need to implement investment-monitoring procedures that will withstand a challenge. Plan fiduciaries will want to be able to demonstrate (with thorough documentation) that they routinely follow a prudent, well-reasoned review and decisionmaking process in both the selection and monitoring of plan investments. For more information, see EBIA’s 401(k) Plans manual at Sections XXIV.G (“Fiduciary Duty #2: Procedural Prudence”), XXV.F (“Investment Fees and Expenses”), and XXXVII.H.3 (“Time Limits for Filing Fiduciary Breach Claims”); see also EBIA’s ERISA Compliance manual at Section XXVIII.I.8 (“Litigating a Breach of Fiduciary Duty Claim”).

Contributing Editors: EBIA Staff.