Friday, September 6, 2013

Avoiding Fiduciary Liability - A Common Sense Approach

The Employee Retirement Income Security Act of 1974 (ERISA) sets the minimum standards for pension plans in the private industry. ERISA also requires accountability of plan fiduciaries which generally would include plan trustees, plan administrators, and members of the plan’s investment committee. The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must
diversify the plan’s investments in order to avoid large losses. Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets.

Recent court cases, most notably Tibble v Edison and Tussey v ABB, Inc. have made clear that plan fiduciaries will be held liable when they fail to meet their fiduciary responsibilities. In the Tussey case the plan’s fiduciaries were held liable for $35.2 million when the court found they:

  1. Failed to monitor record keeping costs paid through revenue sharing and hard dollar costs and to negotiate rebates for the plans; 
  2. Failed to prudently deliberate prior to removing and replacing investment options in the 401(k) plan; 
  3. Selected more expensive share classes when less expensive share classes were available; and 
  4. Permitted revenue sharing for the purpose of subsidizing corporate expenses unrelated to the administration of the 401(k) plan from which the revenue sharing was generated. 

Committee members and other plan fiduciaries must be familiar with their obligations under ERISA and should receive ongoing education regarding legal and regulatory developments, litigation trends and other matters that may impact their roles. Although such education is not required by ERISA, it is a common sense risk management tool. The Department of Labor has begun requesting evidence of fiduciary training as part of its plan investigations and audits, so providing fiduciary training and documenting the training as part of committee meeting minutes will serve plan sponsors well.

If you have any questions about fiduciary liability, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at

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