The U.S. Supreme Court announced that it will wade into the world of ERISA plan fee litigation, when it granted review of a case asking whether plan fiduciaries breach their duties by offering higher-cost, retail-class mutual funds when identical lower-cost, institutional-class funds are available (Tibble v. Edison Int'l,U.S., No. 13-550, cert. granted10/2/14).
The case presents the question: whether participants in retirement plans can hold plan fiduciaries liable for including higher-cost investment funds in the plan when those funds were initially chosen more than six years before the lawsuit, or whether these types of claims are barred by the six-year statute of limitations found in the Employee Retirement Income Security Act.
This six-year limitation has become a huge roadblock for retirement plan participants challenging higher-cost funds, because many funds remain in retirement plans for years after their initial selection. The high court made its announcement Oct. 2.
In the past two years, three federal appellate courts—including the U.S. Court of Appeals for the Ninth Circuit in the instant case—have refused to hold plan fiduciaries liable on these types of claims, finding them time-barred by ERISA.
In ruling for the plan fiduciaries, these courts have characterized the participants' claims as challenging the initial selection of the funds–which typically occurs outside of the six-year period—rather than challenging to the fiduciaries' failure to monitor and replace the funds during the six-year window. In particular, the courts have focused on the lack of any allegations that intervening circumstances caused the complained-of funds to become imprudent during the six-year window.
The Department of Labor has repeatedly attacked these rulings in amicus briefs, including the brief it filed with the U.S. solicitor general advising the high court to hear this case. In the DOL's view, these court rulings give ERISA fiduciaries “no incentive to monitor and update plan investments” once they have been available for more than six years.
Andrew L. Oringer, a partner with Dechert LLP in New York, called this “an extremely high-profile case,” adding that “any pronouncement by the Court on the case may well be anxiously awaited by the market.”
Attorneys See Chance for Reversal
Several attorneys who spoke with Bloomberg BNA indicated that the Supreme Court may be inclined to reverse course from the Ninth Circuit's statute of limitations analysis.
Jim Moore, a participant-side attorney with McTigue Law LLP in Washington, told Bloomberg BNA Oct. 2 that his firm was “cautiously optimistic” that the Supreme Court would “set aside” the pro-fiduciary trend running through Tibble and two other recent circuit court decisions.
“Those decisions, by effectively insulating plan fiduciaries from liability, encourage employers to choose investments for their employees' retirement plans based upon the financial benefit to the employer, rather than the benefit of plan participants,” Moore said.
“This is the type of self-dealing Congress enacted ERISA to prevent,” he added.
Moore wasn't the only practitioner who saw the possibility for a Supreme Court decision rejecting Tibble‘s statute of limitations analysis.
Scott Macey, president and chief executive officer of the ERISA Industry Committee in Washington, told Bloomberg BNA in an Oct. 2 e-mail that it “would not surprise” him if the court overturned the Ninth Circuit on the statute of limitations issue, since it already took the step of granting review in the case.
However, Macey pointed out that plan sponsors and fiduciaries oppose the “endless litigation overhang and uncertainty” that such a ruling by the Supreme Court would bring.
“Our perspective is that six years is enough time to learn about an alleged breach and bring a lawsuit (unless there has been a major intervening change that should re-open the limitations period),” Macey said. “I am not saying that participants should not have the right to sue, only that there should be some reasonable limit within which to do so and ERISA sets that limit.”
“The counter argument is, in this case, that it was a continuing violation and thus the time limit never runs,” he added. “That seems pretty harsh and causes much uncertainty (unless, as I previously mentioned, there have been major changes that should give rise to a new or differing fiduciary analysis).”
Gregory Y. Porter, a participant-side attorney and a partner with Bailey & Glasser LLP in Washington, told Bloomberg BNA in an Oct. 2 e-mail that the Supreme Court's ultimate ruling in Tibble was likely to be influenced by two recent statute of limitations cases that the court decided outside of the context of ERISA.
According to Porter, these rulings suggested that the high court may be inclined to reject the Ninth Circuit's statute of limitations analysis.
“The Supreme Court has decided two important statute of limitations cases that should drive the outcome of this case,” Porter said.
“In Lewis v. City of Chi., 560 U.S. 205 (2010), the Court held that the plaintiffs could challenge the administration of a firefighters entrance exam within the limitations period of Title VII even though the test had first been adopted and applied outside the limitations period. Virtually every rationale advanced by defendants in Tibble (and the 11th Circuit in Fuller v. SunTrust) was rejected by the Court in the Lewis case.”
“More recently, in CTS Corp. v. Waldberger, 134 S.Ct. 2175 (2014), the Court distinguished between statutes of limitations and statutes of repose,” Porter added.
that statutes of repose do not have exceptions; ERISA Section 413 has an exception for
fraudulent concealment, suggesting it is a statute of limitations. This
demolishes the last rationale of Tibble and Fuller, namely that
liability should end because section 413 is a statute of repose.”
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