Retirement and 401K Plan Trustees: Emerging Protection Strategies
developments from the regulators and the courts present new
compliance challenges for 401(k) and other retirement plan trustees.
Traditional strategies for protecting retirement plan fiduciaries
need to be supplemented with new approaches. Consider the
following developments that impose additional duties and expand the
potential liability of “responsible plan fiduciaries”:
you have responsibilities as a CFO, staff attorney or HR
professional, or instead serve as an independent plan service
provider (third party administrator, record keeper, or investment
advisor), you should be concerned about the duties of retirement
plan fiduciaries under Department of Labor fee disclosure
fiduciaries are those responsible for operating the plan and include
the sponsoring employer (which frequently is designated as the
"plan administrator"), members of any investment or
administrative committee, and employees serving as plan trustee or
retirement plan fee disclosure rules have imposed specific
responsibilities on plan fiduciaries. Also, cases like Tussey v. ABB,
Inc. make it clear that retirement plan fiduciaries can be held
accountable for non-compliance with applicable standards of conduct
for details). Many plan fiduciaries will need to take action
to assure compliance.
the following questions that can help determine whether or not plan
fiduciaries are properly responding to the fee disclosure rules and
standards of conduct reflected in the Tussey decision:
plan fiduciaries reviewed and evaluated service provider fee
disclosures to make sure all covered service providers have
provided compliant disclosures?
plan fiduciaries determined the reasonableness of the fees
disclosed by plan service providers and memorialized that
determination in writing?
plan fiduciaries who have not delegated investment
responsibilities to an outside investment manager (not just an
“investment advisor”) deliberated over the plan's investment
plan fiduciaries made a written record of their deliberations?
plan fiduciaries meet on a regular basis to review the plan's
investment performance and provider fees?
If the answer to any of the above questions is "no," then the
plan fiduciaries need to take corrective action.
service providers (TPAs, record keepers and investment advisors)
also should think about the fiduciary practices of their clients.
Although advising clients on fiduciaries' practices may be beyond
the scope of their service agreements, if the plan fiduciaries'
conduct results in liability, those fiduciaries may want to share
that liability with you. Consider referring your clients to
providers who can assist plan fiduciaries with their compliance
concerns if you are not in a position to do so.
plan fiduciaries need to remedy any deficiencies in their current
practices, consider the best way to proceed. Do the fiduciaries want
to work directly with their current plan service providers in
disclosing and evaluating these deficiencies? Do they want to
acknowledge these deficiencies in communications that are subject to
discovery by government agencies and aggrieved participants? Do they
want to create a "roadmap" to be followed by any claimant
that may seek damages for past compliance deficiencies?
engaging special legal counsel to work directly with plan
fiduciaries and to act as a conduit for input from plan service
providers. By engaging special counsel that works only for the plan
fiduciaries, any communications concerning compliance deficiencies
can be protected from unintended disclosure as confidential
attorney-client communications and attorney work product.
flurry of court decisions following in the wake of the Supreme Court
decision in Cigna
Corp. v. Amara, 131 S. Ct. 1866 (2011), has expanded the scope
of ERISA “equitable” relief to include monetary damages.
Monetary damages are now available to participants in actions for
misconduct by plan administrators and other plan fiduciaries.
“Plan fiduciaries” include anyone who exercises any discretion
over plan administration or plan investment decisions. This
means that employers (usually the designated “plan
administrator”), members of investment and administrative
committees, investment managers and advisors, and trustees are plan
v. Dean Health Plan, Inc., No. 11-1560 (2013), a recent decision
of the U.S. Court of Appeals for the Seventh Circuit, has received
significant press attention as a case which permits the recovery of
monetary damages in an ERISA breach of fiduciary duty case. In
the aggrieved participant in a group health plan contacted the
plan’s customer service representative and was assured that her
proposed surgical procedure (correction of vertical banded
gastroplasty surgery undertaken years before to treat obesity) would
be covered under the plan. Following the current corrective
surgical procedure, coverage under the plan was then denied on the
grounds that it was excluded as a service relating to a
“non-covered benefit or service.” This exclusion was held
to be ambiguous because the original gastroplasty surgery, although
excluded from coverage under the current plan, was covered under the
plan in effect at the time of that surgery.
Court in Kenseth
went on to explain that, in the case of an ambiguity in a plan
document, proper exercise of fiduciary responsibility required that
the plan administrator provide a means by which a participant could
obtain an “authoritative determination” on coverage for a
particular medical service in advance. The Court determined
that the participant could have been harmed by her reliance on the
misinformation provided by the customer service representative in
that she would otherwise have checked to see if she had coverage
under her husband’s health plan or undertaken alternative medical
approaches. The Court then observed that the participant would
be entitled to “make-whole” relief in the form of money damages
if she could show that the above fiduciary breaches damaged her.
The case was remanded to the trial court to fashion an appropriate
cases include Gearlds
v. Entergy Servs., Inc., 709 F.3d 448 (5th Cir. 2013) and McCravy
v. Metropolitan Life Ins. Co., 690 F.3d 176 (4th Cir. 2012).
the participant (Gearlds) elected early retirement after he was
advised by a plan administrator that he would continue to receive
medical benefits as a retiree. Gearlds waived benefits under
his wife’s retirement plan in reliance on the coverage assurances
from the administrator. Years later, Gearlds was notified that
his medical benefits were being discontinued because he never had
been eligible for retiree coverage (the administrator had mistakenly
assumed that Gearlds was receiving long term disability benefits at
the time of his retirement, which was an eligibility requirement for
retiree medical coverage). The trial court dismissed Gearlds’
suit for payment of his past and future medical expenses on the
basis of pre-Amara
law. The Fifth Circuit reversed and remanded noting that
Gearlds was entitled to ask that plan fiduciaries be
“surcharged” to cover Gearlds’ medical expenses as
compensation for the misinformation provided to him as an
“equitable form of money damages.”
an employee (McCravy) purchased life insurance for her daughter
through an employer sponsored accidental death and dismemberment
plan. McCravy continued to pay premiums until her daughter
died at age 25, at which time the plan administrator refused to pay
the insurance claim because under the terms of the plan, the
daughter was no longer eligible for coverage after she attained age
24. McCravy’s complaint alleged that the plan’s actions
amounted to a breach of fiduciary duty in that the plan continued to
accept premium payments after her daughter was no longer eligible
for coverage. This lead McCravy to believe that her daughter
was still covered. Because she believed her daughter was
insured, McCravy did not purchase alternate insurance on her
daughter’s life. The Fourth Circuit held that McCravy’s
claim for make-whole relief in an amount equal to the life insurance
proceeds was appropriate because the plan’s benefits were not
available as a result of the fiduciary “wrongfully” accepting
these cases do extend the availability of money damages as
“equitable” relief in fiduciary breach actions, they also
underscore the need for clear and unambiguous plan documents.
Although it goes without saying that participant communications
should accurately reflect the terms of the plan document, even
written misrepresentation of plan provisions may not be actionable
if the plan document itself is unambiguous.
first line of defense for fiduciaries to any fiduciary claim is a
clear and unambiguous plan document. Also bear in mind that,
as to qualified retirement plans, participants can waive fiduciary
breach claims and can be asked to do so upon payment of their
retirement plan benefits (see here).
Additional possibilities include permitted delegation of investment
responsibilities to investment managers or even plan participants in
the case of self-directed individual account plans. So plan
fiduciaries still have significant legal defenses as well as viable
mitigation strategies. And there is optional fiduciary
liability insurance. However, such insurance should not be
confused with the mandatory ERISA fiduciary bond. The ERISA
bond protects the plan not its fiduciaries.
fiduciaries do not have to make perfect decisions but they do need
to exercise prudence in their deliberations. Cases in which
fiduciary investment decisions are questioned frequently turn on the
nature of the process followed by plan fiduciaries rather than the
specific investment decisions that result from that process.
But bear in mind that the service provider fee disclosure rules for
retirement plans provide specific new responsibilities that require
plan fiduciaries to review and evaluate provider services and fees
as well as the compliance of provider fee disclosures.
plan fiduciaries who may have concerns about their past conduct
should review and consider their situation. They may need to
engage advisors or legal counsel to assist. Both can assist
and their communications can be protected from unintended disclosure
by attorney-client privilege. But bear in mind that
communication with the employer’s regular corporate or benefits
attorney may not
be privileged. It may make sense to seek independent legal
counsel to assure such confidentiality.
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