Congress passed the Employee Retirement Income Security Act of 1974 (ERISA) with the goal of “promoting increased participation in pension plans by increasing the security of future benefits.” To achieve this goal, ERISA created a complex regulatory system complemented by civil- and criminal-enforcement provisions. Although Congress enacted ERISA to prevent frauds by plan trustees, trustees escape liability because courts narrowly interpret ERISA’s statute of limitations for breaches of fiduciary duty—a limitations period so incoherent that it is “[h]eld together by chewing gum and baling wire.” Normally, a plaintiff has three years from actual knowledge of the breach of fiduciary duty to bring suit, but the claim cannot be brought more than six years after the breach occurred. However, in the case of “fraud or concealment,” plaintiffs receive a separate six-year time period starting from the date of discovery of the fiduciary’s breach, regardless of when the breach actually occurred. Unfortunately, courts have failed to consider the nature of the fiduciary breach or the trust relationship when interpreting the “fraud or concealment” exception. This interpretive error has led courts to apply ERISA’s statute of limitations restrictively. These courts’ interpretations ignore the body of law upon which ERISA is based, the common law of trusts.

In a trust relationship, the fiduciary controls all relevant information, enabling her to easily conceal a wrongdoing from beneficiaries. Despite the ease with which a fiduciary can hide her breach, courts fail to apply the law of trusts. Instead they narrowly confine the application of the fraud-or-concealment exception, rendering many claims time barred. This Comment discusses the cases interpreting “fraud or concealment.” The cases follow a simple pattern: First, the fiduciary breaches a duty— such as embezzling the plan’s funds—and stays silent. As a result of this silence, the employer or beneficiaries do not discover the claim until years later. Next, they bring suit, arguing that the fraud-or-concealment exception applies to extend the statute of limitations. However, the claim is dismissed as time barred because the court holds that “fraud or concealment” applies only when the fiduciary actively hid the breach. Courts simply ignore that, as recognized at common law, “the trust relationship lends itself to secrecy and concealment on the part of a trustee,” and a fiduciary’s silence effectively hides the breach.

There are currently two interpretations of the fraud-orconcealment exception. The majority rule fuses the exception into the single term “fraudulent concealment,” and the minority rule interprets the phrase as “fraud or [fraudulent] concealment” (alteration in original). The majority rule mistakenly fuses two terms into one, while the minority rule correctly leaves “fraud” in the statute. In other words, under the minority rule, if the breach itself is fraud, active concealment of that breach is not required. However, both rules mistakenly inject “fraudulent concealment,” thereby requiring active concealment of a fiduciary breach. This Comment proposes an alternative interpretation that applies the common law of trusts. This interpretation does not modify the statutory text. Instead, this Comment concludes that regardless of whether the underlying fiduciary breach is fraud, a fiduciary’s material silence concerning the breach should toll the limitations period. No active concealment is required. As the following example illustrates, the fraud-orconcealment exception is critical when plaintiffs seek to bring a claim for breach of fiduciary duty more than six years after the breach occurred.

Imagine a company that provides a defined contribution plan to its employees. Employees contribute a portion of their wages to the fund, and the employer matches their contributions. Unfortunately for the employer and employees, the plan’s trustee was dishonest. The plan’s trustee conspired with a stockbroker to defraud the plan. The stockbroker illegally churned the plan’s securities by repeatedly trading them, splitting the brokerage fees with the trustee in exchange for her silence.

The trustee did not have to take any steps to conceal her scheme. She meticulously adhered to ERISA’s reporting requirements, providing beneficiaries annual reports with accurate data reflecting the return on the plan’s investments. However, the reports hid the scheme in plain sight. Although the trustee accurately reported the stockbroker’s investments, the reports lacked information relevant to the kickbacks. In 2005, unhappy with the return on the plan’s investments, the employer fired the trustee. Then in 2012, seven years after the last fraudulent transaction, the company considered modifying the benefit plan and uncovered the trustee’s wrongdoing. An independent audit discovered the stockbroker’s asset churning, and the company discovered the trustee’s foul play by scouring its email and phone records. The company brought suit in early 2013, seeking to disgorge the trustee and stockbroker of their profits and restore that money directly to the plan. However, because more than six years had passed since the last breach of fiduciary duty, the district court dismissed the claim.

The company’s lawyer argued that ERISA provides any plaintiff six years from the discovery of a claim when fiduciaries engage in fraud or concealment. Even though the last breach occurred in 2005, the attorney contended that the suit was timely because the company did not discover the claim until 2012. However, the district court cited the majority legal rule, which combines the phrase “fraud or concealment” into “fraudulent concealment.” For fraudulent concealment to apply, the fiduciary has to take steps to actively conceal the breach. Unfortunately for the company, the trustee’s mere silence did not constitute an active step to hide the breach, so the district court dismissed the complaint as time barred. Though the trustee did not engage in fraudulent concealment under either rule, the minority rule could still possibly allow the plaintiff to bring the claim six years from discovery if the trustee’s actions constituted fraud.