Recently, plaintiffs’ attorneys have brought dozens of lawsuits against universities alleging that their retirement plan fiduciaries breached their duties under the Employee Retirement Income Security Act of 1974 (ERISA).
A failure to fulfill fiduciary duties under ERISA can lead to serious consequences, including personal liability under ERISA. There are steps fiduciaries can take to discharge their responsibilities and avoid these harsh results.
ERISA fiduciary duties
Under ERISA, fiduciaries of retirement plans must meet the highest standard of care known in law—the fiduciary duty. This requires fiduciaries to act solely in the interests of participants and beneficiaries—and with care, skill, prudence and diligence.
Fiduciaries must also act for the exclusive purpose of providing benefits to participants and beneficiaries. The best way to do this is to develop and document a process for making the fiduciary decisions.
Best practices begin with well-written, clearly drafted policies and procedures. The plan document should identify who is responsible for particular fiduciary functions. It might, for example, designate the board of directors as a fiduciary, but only to appoint the fiduciary committee established by the plan document.
An investment policy statement should address how the fiduciary committee decides investment issues. It should list investment objectives, asset-allocation policies, diversification approaches, spending policies, procedures for monitoring investments, and what assistance the committee should obtain from third-party advisors.
Failure to comply with written policies alone can be evidence of potential mismanagement. Therefore, policies must be clear, concise and enforceable, unless doing so would violate ERISA.
Training and auditing
Committee members should have diverse backgrounds and areas of expertise. Fiduciaries should be trained by outside counsel with expertise in ERISA retirement plans.
Effective audits evaluate the fiduciaries, service providers and documentation. Audits also check for lapses in fiduciary functions and whether any policy changes are required.
Expert assistance
Many fiduciary decisions require specialized knowledge and information. Fiduciaries should retain third-party experts for these issues, and pay attention to what the fiduciary duty requires when selecting service providers.
Service providers must be independent—meaning they have no conflicts that might give the appearance that the service provider or fiduciaries are not acting in the best interests of the participants and beneficiaries.
Even though service providers might do most of the analysis and provide reports and recommendations to the fiduciaries, fiduciaries make the final decision, ensuring the decision is based on reliable information.
Ongoing obligations
Fiduciary decisions will likely be made at meetings. Fiduciaries have an obligation to ensure that prior decisions remain prudent over time, including decisions about the selection of service providers, the payment of fees by the plan, investment options, and plan administration issues.
Document the details
Reports should be drafted with an eye to the future so that they provide evidence of what happened years prior. A person with little knowledge of the plan should be able to understand the committee’s actions and decisions.
These practices will help fiduciaries fulfill their obligations and ensure that their decisions are given deference in the event of litigation.
Sarah Bassler Millar and Richard Pearl are with Drinker, Biddle & Reath LLP.
