ERISA’s Fiduciary Duty to Monitor
In Tibble v. Edison International, 135 S. Ct. 1823 (2015), the Supreme Court clarified the applicability of ERISA’s statute of limitations to the fiduciary duty to monitor. The plaintiffs alleged that fiduciaries violated the duty to monitor investments by continuing to offer retail-class mutual funds to 401(k) plan participants as opposed to institutional-class funds with lower fees. The Court held “that the duty of prudence involves a continuing duty to monitor investments and remove imprudent ones” and that a breach of the duty to monitor occurring within ERISA’s statute of limitations was sufficient to hold that plaintiffs’ fiduciary breach claims were not time barred. Id. at 1829.
While Tibble involved the duty to monitor 401(k) plan investments, another important fiduciary duty to monitor exists with regard to the appointment of plan fiduciaries and the selection of service providers to plans. The Department of Labor has explained the following:
At reasonable intervals[,] the performance of trustees and other fiduciaries should be reviewed by the appointing fiduciary in such manner as may be reasonably expected to ensure that their performance has been in compliance with the terms of the plan and statutory standards, and satisfies the needs of the plan. No single procedure will be appropriate in all cases; the procedure adopted may vary in accordance with the nature of the plan and other facts and circumstances relevant to the choice of the procedure.
29 C.F.R. § 2509.75-8, FR-17.
The Department has made it clear that the “reasonable intervals” standard also applies to monitoring plan service providers. See http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html.
Notably, the duty to monitor is part of a fiduciary’s obligations under ERISA § 404(a)(1). Indeed, consistent with the Supreme Court’s analysis in Tibble, some courts have held that it is part of the duty of prudence. However, the duty to monitor should not be confused with co-fiduciary duties under ERISA § 405(a)—that section requires the elements of one of its subsections (e.g., knowledge of a fiduciary breach by another without making reasonable remedial efforts) whereas those elements are not required to be satisfied in order for a breach of ERISA § 404(a)(1) to occur.
Notwithstanding the difference between the duty to monitor and co-fiduciary duties, it is critical for fiduciaries to understand both, as ERISA is not forgiving to fiduciaries who are unware of their responsibilities.