Fiduciary Governance: Trust Me By: Diana PowellESQ.

“The best way to find out if you can trust somebody is to trust them.” 
— Ernest Hemingway

The term fiduciary comes from the Latin term fiducia which means “trust.” According to the Department of Labor (DOL) a plan fiduciary is “a person or entity that uses discretion in administering and managing a plan or controlling a plan’s assets to the extent of that person or entity has discretion or control.” This operation of a plan is the exercise of fiduciary governance of plan fiduciaries. 

Under the Employee Retirement Income Security Act (ERISA) 404(a)(1) “… a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: 

• Providing benefits to participants and their beneficiaries; and 
• Defraying reasonable expenses of administering the plan. 

ERISA 404(a)(1)(A) the Duty of Loyalty to plan participants and their beneficiaries requires that in discharging his fiduciary duties, the fiduciary’s decisions … “Must be made with an eye single to the interests of the participants and beneficiaries.” 

Further, ERISA 404(a)(1)(B) requires that in discharging his fiduciary duties, the fiduciary must act…“ with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 

Experts clearly warn that “the role as fiduciary is based on function, not title.” Therefore it is important to pay close attention to the duties performed, not just the title one is assigned with regard to a plan, because it is the “actions involved in operating a plan that make the person or entity performing them a fiduciary” not the title. 

Anyone who is a plan sponsor should have their duties clearly defined and the details of the plans distinctly stated. That is the main purpose of documentation such as Investment Policy Statement (IPS) and Summary Plan Descriptions (SPD), among others. Having plan documents in place protects both the plan sponsors and the participants. Reducing the plan to writing is in fact required by law. 

ERISA 402(a)(1) requires that plans be written: “Every employee benefit plan shall be established and maintained pursuant to a written instrument.” 
Armed with written documents and proper training, plan sponsors should be capable and able to perform their duties to the standards expected of them by the corporations they represent and the participants they serve. Standards are high but so are the stakes to the participants and beneficiaries. The risks are great. The duties and responsibilities are immense. “Fiduciary duties under ERISA ‘are the highest known to law.’” (Donovan v. Bierworth, 680 F.263, 271 (2d Cir.), cert. denied, 459 U. S. 1069 (1982) Participants trust that plan sponsors will fulfill their fiduciary duties. They literally trust them with their life savings. 

However, training and documentation may not be enough to prepare a plan sponsor to meet his fiduciary duties. It is at these times when the courts recognize that a plan sponsor has a duty to hire an outside expert advisor. “Where a trustee does not possess the education, experience and skill required to make a decision concerning the investment of a plan’s assets, he has an affirmative duty to seek independent counsel in making the decision.” (Katsaros v. Cody, 74 F.2d 279 (2nd Cir.), (1984) 

In cases where the plan sponsor lacks the knowledge to prudently carry out his fiduciary duties to implement the plan for the benefit of the participants and beneficiaries the court has found the plan sponsor liable for a breach of his fiduciary duty. “The failure to seek outside counsel when ‘under the circumstances then prevailing … a prudent man acting in a like capacity and familiar with such matters’ would seek outside counsel, is imprudent and a violation of ERISA.” (Katsaros v. Cody) 

A word of caution with regard to plan sponsors seeking outside council – although failure to do so may be regarded as a breach of fiduciary duty by the courts, case law has held that “blind faith” in the advice of an independent expert does not necessarily relieve a plan sponsor of his liability. Courts have held that while plan sponsors should retain the services of third part consultants when circumstances necessitate it. Plan sponsors should use the advice appropriately, basing their decisions upon the particular facts and individual needs and requirements of their participants and beneficiaries, “… (the court) believes that ERISA’s duty to investigate requires fiduciaries to review the data a consultant gathers, to assess its significance and to supplement it where necessary.” (Unisys Savings Plan Litigation, 74 F. 3d 420 (3rd Cir.), (1996) 

The timing of this is important because experts warn that in the past twelve months the Department of Labor has been “cracking down on retirement plan advisors for fiduciary negligence.” This is significant because it should serve as a “heads-up” to plan sponsors to bring their “A” game to the table. Understand what your duties and responsibilities are to the plan and the participants and beneficiaries. 

Make certain as a plan sponsor you are meeting your fiduciary responsibilities under ERISA. If you are uncertain or do not understand how to carry out your duties as a plan sponsor seek outside counsel – it is not only prudent, it is legally required! Be worthy of the trust that is placed upon you by the participants! Meet your fiduciary duties – it’s the law!

Diana K. Powell

Diana K. Powell, Esq. joined Westminster Consulting in September 2012 as Senior Legal Advisor. Previously she was a sole practitioner who advised educational organizations, government bodies and private corporations. Diana was responsible for negotiating agreements for high-tech software corporations...

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