9 April 2015
An upcoming U.S. Supreme Court case that purports to be about ERISA's statute of limitations actually provides an opportunity for retirement plan fiduciaries to improve their processes for monitoring plan investments, attorneys said during a teleconference.
The case, Tibble v. Edison Int'l, U.S., No. 13-550, argued 2/24/15 (37 PBD, 2/25/15), initially raised the question of whether Section 401(k) participants can hold fiduciaries liable for including high-cost investments in the plan when those investments were initially chosen more than six years before the lawsuit was filed.
However, both the parties litigating the dispute and the justices hearing the case have indicated that they now see the case as involving the duty of plan fiduciaries to monitor investments and other aspects of plan administration, said Brian D. Netter, a partner with Mayer Brown's Washington office.
According to Netter, although court-watchers aren't “expecting bombshells” from the justice's ultimate decision in Tibble, the case provides a good opportunity for plan fiduciaries to reflect on their duty to monitor and ensure that they are implementing and following prudent monitoring practices.
Netter, along with fellow Mayer Brown partner Nancy G. Ross of the firm's Chicago office, spoke during an April 9 teleconference titled What ERISA Plan Fiduciaries Can Learn From Tibble v. Edison International. The teleconference was sponsored by Mayer Brown.
Both Netter and Ross predicted that the Supreme Court's ultimate ruling in Tibble would focus more on fiduciary duties than the narrow statute of limitations question the court initially decided to hear. Netter said he expects that the court will “confirm the parties' understanding” of the statute of limitations issue but devote the bulk of its attention toward the Employee Retirement Income Security Act's fiduciary duty to monitor.
The justices are “very interested in how fiduciaries operate,” Netter said, pointing to several instances during oral arguments when the justices pressed the parties to explain the fiduciary process more fully.
Despite this interest, Netter said that the justices appeared disinclined to elaborate clear standards of fiduciary conduct, instead preferring to leave that task to the lower court judges hearing these disputes in the first instance.
“It's unlikely that the justices will be diving into the nitty-gritty in their opinion,” Netter said.
Echoing that idea, Ross said she expects the “fallout”from the Tibble decision to be that there will be a “greater focus on the fiduciary's duties, and in particular the fiduciary's duty to monitor.”
Monitoring Service Providers
With the knowledge that a fiduciary's monitoring practices are likely to come under increased judicial scrutiny in the future, how should attorneys advise their fiduciary clients?
According to Ross, the duty to monitor generally encompasses two broad obligations—the duty to monitor plan investments, and the duty to monitor plan service providers.
Although Tibble focuses more on plan investments, Ross encouraged fiduciaries not to forget about their duty to monitor plan service providers, noting that the Department of Labor has been particularly interested in this aspect of fiduciary conduct in recent years.
Ross said that the DOL has publicly stated that fiduciaries have a duty to “periodically” review their service providers, but it hasn't identified exactly what periodically means.
However, she encouraged fiduciaries to use these periodic reviews to consider the following issues:
whether the provider has experienced significant changes since it was first hired by the plan;
whether the provider continues to meet any applicable federal or state requirements, such as those established by securities laws;
whether the provider fulfills the obligations set forth in its contract with the plan; and
whether there have been any participant complaints about the provider.
Netter discussed the best practices for monitoring plan investments, repeatedly emphasizing the importance of clear documentation.
“We live in a data-driven world,” Netter said. A judge who evaluates whether a fiduciary prudently monitored plan investments “is going to expect for there to be data,”he added.
In particular, Netter encouraged fiduciaries to adopt a benchmarking approach that involves periodically comparing plan investments to similar investments to ensure that the plan's performance and fees are in line with expectations and consistent with the disclosures made to plan participants.
Just as important as benchmarking is documenting that process, Netter said.
“The best way to demonstrate that you have been a thoughtful fiduciary is to record what you've been doing,” he said.
Both Netter and Ross encouraged fiduciary committees to ensure that the minutes of their meetings are sufficiently detailed to demonstrate a prudent process.
“The days of discrete minutes in committees in the ERISA setting are over,” Ross said.
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Reproduced with permission from Pension & Benefits Daily, 69 PBD (April 10, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com