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Supreme Court Rules that 401(k) Plan Sponsors Have an Ongoing Duty to Monitor Investments (Tibble v. Edison)

June 22, 2015

The Supreme Court unanimously decided that separate and apart from the selection of investment choices, a retirement plan fiduciary has a "continuing duty" to monitor investments and remove imprudent ones.

In Tibble, individual beneficiaries of a 401(k) Savings Plan claimed that plan fiduciaries violated their duties by failing to offer institutional class funds at lower fees than the identical funds in the plan's line up which were at much higher cost.

The Court determined that the role of a fiduciary must be active - not passive. Fiduciaries satisfy their duties by being attentive and active and must engage in an independent investigation of the plans' investments. Reliance on expert advice is not a complete defense to a claim of fiduciary imprudence.

The Court did not define what this duty to monitor entails, thus providing no safe harbor. Failure to implement adequate monitoring and reviewing procedures may subject fiduciaries to personal liability for a breach of their fiduciary duty.

Monitoring and review procedures to consider include:

  • Establishing a 401(k) investment committee, whose members have been educated on ERISA fiduciary responsibility
  • Maintaining adequate and thorough written records of all reviews and subsequent decisions
  • Creating written guidelines for monitoring
  • Developing a recorded and prudent written process for all decisions concerning plan investments

For more information contact:
Stephen L. Ferszt 

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