The Ongoing Fiduciary Obligation to Monitor Investments

February 23, 2017

The Ninth Circuit Court of Appeals recently held that ERISA requires fiduciaries to monitor plan investments continuously throughout their respective terms. The case began in 2007 when a group of 401(k) participants sued their plan. The participants argued the plan’s fiduciaries breached their duties by selecting some investments that were more costly, without considering less costly alternatives. The lower court held that the participants’ claims were barred due to ERISA’s six-year statute of limitations. The statute of limitations applied because there was not a change in circumstances sufficient to have warranted the re-examination of the investments during the six-year statute of limitations period. The entire Ninth Circuit Court of Appeals disagreed, holding that the duty to monitor investments is continuing. Practically speaking this means that there could be multiple fiduciary breaches throughout the term of an investment, particularly the longer the plan utilizes an investment option without review. This case is a strong reminder that fiduciaries need to exercise prudence not only when initially selecting investments but must also exercise prudence and continue to monitor investments in regular intervals.

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