A recent fiduciary education webcast hosted by Nancy Ross, partner in Mayer Brown’s litigation and dispute resolution practice, and Brian Netter, partner in the firm’s Supreme Court and appellate practice, made the case that the retirement plan industry won’t be reshaped in a meaningful way by the final resolution of Tibble vs. Edison.
This is partly because Mayer Brown anticipates a narrowly constructed decision from the Supreme Court—given the technical and convoluted path the litigation followed to reach the top court—and partly because many plan sponsors have already moved away from the behaviors that got utility company Edison International in trouble with its 401(k) plan participants in the first place.
The 401(k) fee litigation has climbed about as high as a legal dispute can in the United States—getting a day of argumentation before the U.S. Supreme Court back in February. A review of argument transcripts in Tibble v. Edison shows Supreme Court justices had an extensive amount of questions for both the appellants and appellees—many of which strayed far beyond the narrow review to which the Supreme Court initially said it would limit itself.
As explained by Ross and Netter, the Supreme Court said it would focus only on timing and limitation issues stemming from complaints filed under the Employee Retirement Income Security Act (ERISA). But when Tibble was actually probed by the SCOTUS justices, their inquiries waded deeply and widely into the nature of the fiduciary duty and its fundamental relationship with trust and contract law.
This caused some in the retirement industry to ask whether the Tibble vs. Edison decision could redefine or fundamentally alter important aspects of the fiduciary duty prescribed by ERISA—an outcome that is still certainly possible, given that the case hasn’t been finally decided. During their questioning, the justices even went so far as to probe the legal and practical difference between the “duty to select” and the “duty to monitor” investment options placed in an ERISA plan—concepts that today remain somewhat squishy under ERISA and are constantly being tested in lower courts, Netter and Ross observe.
“Something that is critical to note about the way Tibble is playing out is that, when the Supreme Court briefs were filed, it became clear that everyone agrees already that ERISA’s six-year limitations period does in fact bar a claim that is more than six years old,” Netter explains. “Where there is disagreement is around the nature of the underlying fiduciary duty and whether there is a truly distinct duty to monitor, such that it has a distinct rolling limitations period.”
Ross and Netter feel its “highly unusual” for the Supreme Court to agree to hear one question, and then for the parties to decide in their briefs that they have already settled the question, and that they, the parties, want the court’s input on another question entirely.
“In a sense that is exactly what has happened with Tibble v. Edison,” Netter concludes.
Netter and Ross went on to suggest it’s likely the Supreme Court will take a narrow approach and “leave open as many questions as it answers” coming out of Tibble. In short, the pair does not expect a ruling that will firmly codify the difference between the duty to select and the duty to monitor investments, nor do they expect a major change to the way ERISA’s six-year period of repose is interpreted—whether or not the Supreme Court decides participants were wronged in this case.
Netter and Ross are quick to qualify the point, however, and to encourage plan sponsors to consider what Tibble means for them: “The way the case has progressed to reach the Supreme Court, and the way justices reacted during the argument phase, it seems likely to us that companies that are responsibly trying to manage their risk under ERISA should long ago have taken actions to ensure they are satisfying certain standards that are being highlighted by the ongoing case,” Netter explains.
The pair notes that the final Tibble decision may hinge on timing issues, but the initial complaints stem from something entirely different—the inclusion of retail share classes on a 401(k) plan investment menu when cheaper share classes were available. However the questions of timing and monitoring turn out in this specific case, even the lower courts were clear that a prudent sponsor would have taken action to get the lower-priced share class. In the lower courts' decisions, Edison International was protected from certain liabilities because plaintiffs apparently waited too long to file a complaint—not because Edison Internal successfully defended its decisionmaking.
Another ERISA expert, Mark Blocker, an attorney and partner at Sidley Austin LLP, agrees with that assessment. He also tells PLANSPONSOR he doesn’t believe the decision in this case will open the floodgates to new lawsuits of this nature, as some have predicted, because most plan sponsors have already adjusted their approach to building a plan investment menu.
“In my experience, most fiduciaries review their plan investments quarterly in accordance with widely accepted industry practices designed with ERISA compliance firmly in mind,” he notes. “My estimation is that the court’s decision remains unclear in this case. Both parties agreed there is an ongoing duty to monitor but disagree whether the Ninth Circuit opinion can be squared with that duty.”
Blocker says the interesting parts of the Tibble outcome will have more implications for legal scholars than retirement plan industry practitioners. Like Ross and Netter, he feels the Supreme Count isn’t necessarily equipped to make a broad ruling in a case like this, “which has shifted and morphed so much on its way through the appeals process, to really firmly pin down the contours of where the fiduciary duty stands today would be extremely challenging.”
“Will they need to remand the case back to the lower courts or will they offer an interpretation of the statute of limitations in ERISA as it related to the duty to monitor?” he asks. “We just don’t know yet.”