LITTLE GUIDANCE, MANY DANGERS

A trustee’s duties are generally the stuff of state law.  But because 401(k)s, among a few other instruments, are federally created, and plan managers have the same duties as trustees, the U.S. Supreme Court occasionally gets to put its two cents in.

Alas, with all due respect to the Highest Court, this does not always guarantee the greatest clarity for those of us toiling in the trenches.  The latest case comes in the form of a dispute over mutual fund management fees and statutes of limitation.  But the decision the Supremes ultimately had to make was whether, when a trustee made an investment decision, say, 6 years ago, it had ongoing duties about it long after that.

The Court’s short answer is clear enough: yes.  It held that trustees have a duty to conduct regular reviews of the portfolio under their care.  “Managing embraces monitoring,” it summarized.

But what the Court did not do is give any inkling of the scope of that duty.  How often must a trustee conduct such a review? In how much depth? Must they monitor all assets? The market beyond? Might it depend on other factors, like the trust’s terms of the kind of company offering the 401(k)? Must they investigate all alternatives to all investments at all times, regardless how well a given fund may be performing? If not, how do they decide what to review – and how deadly will it be to them if they make a mistake and end up on the wrong side of a lawsuit?

Like angels in heaven, the Justices did not descend to deal with the devil in the details.  So it will be corporations, trustees, and their attorneys, who will have to dodge the pitchfork.