INSTITUTIONAL INVESTMENT & FIDUCIARY SERVICES:
U.S. Supreme Court Rules Fiduciaries Have Ongoing Duty
To Monitor ERISA Plan Investments
The Supreme Court of the United States has ruled that fiduciaries responsible
for managing plan assets subject to ERISA have “a continuing duty to
monitor trust investments and remove imprudent ones . . . [which] exists
separate and apart from the trustee’s duty to exercise prudence in selecting
investments at the outset.” The May 18 unanimous opinion in Tibble v.
Edison International held that a class of 401(k) plan participants can
challenge as imprudent the inclusion of high-priced retail class mutual funds
in an investment array even though the fiduciaries initially selected the funds
9 years before they sued, as long as the participants can show an imprudent
failure to monitor and review the investments within the six-year statute of
limitations period before they sued.
What does that ‘continuing duty to monitor’ actually mean? What are the
components of that ‘continuing duty to monitor?’ The Court didn’t say much,
other than fiduciaries cannot simply rely on their initial decision unless and
until there is a “significant change in circumstances.” One formulation in the
Court’s opinion is, “[U]nder trust law a fiduciary is required to conduct a
regular review of its investment[s] with the nature and timing of the review
contingent on the circumstances.” A couple of paragraphs later, the Court
said, “In short, under trust law, a fiduciary normally has a continuing duty of
some kind to monitor investments and remove imprudent ones.” The Court
will leave it to future litigation in the lower courts to decide exactly what
level of continuing monitoring and review a prudent fiduciary must
undertake.
While the case arose in the context of mutual fund selection for a
401(k) plan, the Court’s reasoning will apply to investment decisions by
fiduciaries of all plans subject to ERISA’s fiduciary rules, i.e., Defined
Benefit plans, VEBAs, trustee-directed annuity funds, etc.
The investment professionals of the Institutional Investment & Fiduciary
Services practice of Arthur J. Gallagher & Co. (Gallagher Fiduciary
Advisors, LLC) provide rigorous, ongoing monitoring and evaluation of
client investments, including the pertinent fee structures, consistent with
ERISA’s demanding fiduciary standards.
AJG.COM
ARTHUR J. GALLAGHER & CO.
About the Practice
The Institutional Investment & Fiduciary Services practice of Arthur J.
Gallagher & Co. (Gallagher Fiduciary Advisors, LLC), focuses on improving
the investment program of your benefit plan and other investment pools.
Gallagher’s Institutional Investment & Fiduciary Services practice is a group
of established, proven investment professionals who provide objective
insights, analysis and oversight on asset allocation, investment managers, and
investment risks, along with fiduciary responsibility for investment decisions
as an independent fiduciary or outsourced CIO. For more information, visit
www.ajg.com/institutionalinvestment
© 2015 Gallagher Fiduciary Advisors, LLC
Investment advisory, named and independent fiduciary services are offered through Gallagher Fiduciary
Advisors, LLC, an SEC Registered Investment Adviser. Gallagher Fiduciary Advisors, LLC is a singlemember, limited-liability company, with Gallagher Benefit Services, Inc. as its single member. Neither
Arthur J. Gallagher & Co., Gallagher Fiduciary Advisors, LLC nor their affiliates provide accounting,
legal or tax advice.
2
AJG.COM
ARTHUR J. GALLAGHER & CO.