In a unanimous decision, the Supreme Court has ruled in favor ofparticipants in Edison International's 401(k) plan who claimedcompany fiduciaries violated their duty to monitor threeretail-class mutual funds.

The decision in Tibble vs. Edison International overturns theruling of the 9th Circuit Court of Appeals, which upheld a rulingfrom U.S. District Court for the Central District of California infavor of Edison.

“ERISA's fiduciary duty is derived from the common law oftrusts, which provides that a trustee has a continuingduty—separate and apart from the duty to exercise prudence inselecting investments at the outset—to monitor, and removeimprudent, trust investments,” wrote Justice Stephen Breyer, whodelivered the opinion for the court.

The question before the court was whether the plaintiffs' claimagainst three retail-class mutual funds Edison added to itsinvestment lineup in 1999 constituted a fiduciary breach, becausematerially equivalent and cheaper institutional shares existed.

With respect to three other retail-class funds added in 2002,the lower courts found Edison in breach of its fiduciary duties foradding the more expensive investment options.

The district and appellate court rulings dismissed the claimsagainst the three funds added in 1999 on the grounds that they werenot timely; one part of ERISA's statue of limitation says thatclaims must be brought within six years of the alleged fiduciarybreech. Edison participants brought their claim in 2007, eightyears after Edison fiduciaries added the first three retail-classfunds in 1999.

Plaintiffs' counsel, led by attorneys from St. Louis-basedSchichter, Bogard and Denton, argued all along that ERISA's statueof limitation requires fiduciaries to prudently monitor theirinvestment selections, and that the six-year limit to make a claimbegins at the last point fiduciaries proved to have not prudentlymonitored the investments, not at the time the investments werefirst chosen.

When accounting for that component of ERISA's statue oflimitations, the plaintiffs' claim in Tibble vs. Edison came wellbefore the six-year limit expired.

The Supreme Court agreed.

“So long as a plaintiff's claim alleging breach of thecontinuing duty of prudence occurred within six years of suit, theclaim is timely,” Justice Breyer wrote.

In the original District Court decision, Judge Stefan Wilsonruled the plaintiffs did not meet a burden to show that specificchanges in circumstances occurred to require Edison fiduciaries toundertake a full due-diligence review of the funds added in1999.

In upholding that decision, the 9th Circuit ruled that Edisonfiduciaries had no obligation to review the prudence of theinvestments, because circumstances had not changed to require areview.

The 9th Circuit also determined that “characterizing themere continued offering of a plan option as a subsequent breachwould render” the statute of limitations meaningless, and couldexpose fiduciaries to liability for decisions made decades ago,according to Justice Breyer's analysis of the lower court'sruling.

But the 9th Circuit “did not recognize that under trust law afiduciary is required to conduct a regular review of its investmentwith the nature and timing of the review contingent on thecircumstances,” wrote Breyer.

Citing previous courts' consideration of trust law whendetermining ERISA claims, Breyer also wrote that a trustee “has acontinuing duty to monitor trust investments and remove imprudentones. This continuing duty exists separate and apart from thetrustee's duty to exercise prudence in selecting investments at theoutset.”

Furthermore, a trustee must “systematically consider all theinvestments of the trust at regular intervals” to ensureappropriateness, argued Breyer.

In establishing a fiduciary's ongoing duty to monitorinvestments, the High Court did not issue an opinion on thespecific scope of Edison's fiduciaries to review and monitor theinvestments in question.

The case has been remanded to the 9th Circuit Court, which hasbeen instructed to reconsider plaintiffs' claims, recognizing theimportance of “analogous trust law,” according to the SupremeCourt's brief.