ERISA Statute of Limitations: How to Reduce Your Fiduciary Liability by 50%

Excessive fees continue to be a hot topic for retirement plan committees to address, including determining which share class to use, the amount of revenue sharing paid by each investment, how much of the plan expense should be allocated to plan assets versus paid by the plan sponsor, whether or not a covered service provider should be paid fees based on a percentage of assets, and how fees should be allocated among participants.

Statute of Limitations: The Basics

ERISA Section 413 limits the time frame during which a plaintiff can bring a fiduciary breach claim for excessive and unreasonable fees to 6 years or an alternative 3 years if certain requirements are met. It is important to note that fraud, concealment, conflicts of interest and self-dealing can nullify the statutes protection.

Since lawsuits can be filed by the Department of Labor, participants, beneficiaries and other fiduciaries, it is important that a fiduciary consider various strategies to mitigate litigation risk by leveraging the existing statute of limitations provisions.

The Supreme Courts Position in Tibble

In Tibble v. Edison, the Supreme Court agreed that a fiduciarys obligations to monitor investment expenses resets the statute at each point in time expenses are evaluated, which arguably should occur on an annual basis. The Supreme Courts decision is aligned with current practices to conduct investment reviews at least annually.

Actual Knowledge of Your Decisions

Documentation goes a long way in establishing proof that a thoughtful, procedurally prudent process exists. If a fiduciary combines documentation with an action plan that complies with the 3-year statute of limitation requirements, the fiduciary has effectively reduced exposure to monetary damages by 50%.

How is this possible? Simply by providing those most likely to sue you with actual knowledge of your decisions.