Participant’s Imprudent Funds Claims Time-Barred by ERISA

A federal appeals court has dismissed claims of a participant in Suntrust Bank’s 401(k) plan that the company engaged in “corporate self-dealing” at the expense of plan participants.

Barbara Fuller alleged the defendants in the case violated their Employee Retirement Income Security Act (ERISA) fiduciary duties of loyalty and prudence by selecting eight proprietary funds (referred to as the STI Classic Funds) that were more expensive and performed worse than other funds they could have included in the plan, and by repeatedly failing to remove or replace the funds. Although the 11th U.S. Circuit Court of Appeals disagreed with a district court’s dismissal of certain claims based on ERISA’s three-year statute of limitations, it found all the claims were time-barred by ERISA six-year statute of limitations.

It was found that Fuller lacked standing to bring any claim as to the STI International Fund because she never invested in that fund.

The appellate court noted that for claims of fiduciary breaches under §1104(a)(1), ERISA provides that no action may be commenced “after the earlier of”: (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.

The court found the documents attached to the defendants’ motion to dismiss did not show that Fuller had actual knowledge of the breach because defendants did not show that the documents were provided to Fuller or that she obtained knowledge of the facts in the documents from another source. All but one of the documents were dated after Fuller had cashed out her account. It was unclear whether the Plan Prospectus, which was dated August 1, 2005, was actually available to Fuller before her cashout date. “That the documents (or the relevant facts in the documents) were provided to [Fuller] is a necessary predicate to establishing the three-year bar,” the court said in its opinion.

For claims that the defendants breached their fiduciary duties by selecting the funds, the court found it clear those were time-barred by ERISA’s six-year statute of limitations since the funds were selected in April 2004. However, the court cited the 9th Circuit’s decision in Tibble v. Edison, in saying a new six-year limitations period under ERISA would begin where a plaintiff could “establish changed circumstances engendering a new breach” (see “9th Circuit Affirms Ruling in Retail Fund Dispute”). In Tibble, the court explained that “changed circumstances” could be shown where “significant changes in conditions occurred within the limitations period that should have prompted ‘a full due diligence review of the funds, equivalent to the diligence review [fiduciaries] conduct when adding new funds to the Plan.’”

But, the court found circumstances in the Fuller case were similar to a case from the 4th Circuit, David v. Alphin, in which a district court found the allegations relating to ongoing monitoring of funds were just restatements of allegations regarding the selection of funds (see “Case Sensitive: Long Standing?”). The 11th Circuit said Fuller’s allegations concerning the imprudent acts that allegedly occurred at the time the STI Classic Funds were selected and those that occurred thereafter are in all relevant respects identical. It concluded that Fuller’s complaint contains no factual allegation that would allow us to distinguish between the alleged imprudent acts occurring at selection from the alleged imprudent acts occurring thereafter.

“Thus, like the Fourth Circuit in David, we decline to decide whether the Committee Defendants had an ongoing duty to remove imprudent investment options from the Plan in the absence of a material change in circumstances… Accordingly, Fuller’s claims in Count 2 are time-barred by ERISA’s six-year period of limitations,” the appellate court concluded.

The 11th Circuit’s opinion in Fuller v. Suntrust Banks, Inc. is here.