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Fiduciary Duties

THE FIDUCIARY CORNER: You ARE Your Brother’s Keeper – Co-Fiduciary Liability Under ERISA

Plan fiduciaries must not only make sure that their own conduct complies with ERISA’s exacting standards, they also have a duty to monitor the conduct of the plan’s other fiduciaries.  The failure to do so can result in personal liability under ERISA’s co-fiduciary duty rules, as demonstrated by Smith v. Stockwell Construction Co. (W.D.N.Y. Dec. 10, 2011).

Federal Appeals Court Upholds $243,000 Damage and Fee Award for Employer’s Failure to Provide SPD and Election Forms

A recent ruling from the federal Court of Appeals highlights two critical ERISA basics:  fiduciary duties and disclosure requirements.  In Kujanek v. Houston Poly Bag, the Fifth Circuit upheld an award of damages and fees of more than $243,000 for an employer’s failure to provide a participant with a copy of a retirement plan’s summary plan description (“SPD”) and a rollover election form.  As explained more fully in the rest of this article, that amount could increase significantly when the lower court reconsiders the question of statutory penalties.

Department of Labor Finalizes, Delays 401(k) Fee Disclosure Rules

On February 2, 2012, the Department of Labor (“DOL”) released final regulations under Section 408(b)(2) of ERISA, requiring retirement plan service providers to disclose information about their services and fees to plan sponsors.  In doing so, the DOL delayed the effective date of those rules and made minor modifications to them. 

THE FIDUCIARY CORNER: Loss of Privilege: Another Reason Not to Give the Company a Fiduciary Role

In our efforts to help plan sponsors minimize their fiduciary risk, we consistently advise against giving the sponsoring employer a fiduciary role. Designating the “company” or “employer” as an ERISA fiduciary can unintentionally subject the employer’s executive officers and board of directors to ERISA’s fiduciary standards, and potentially to personal liability. The United States Supreme Court recently reminded us of another reason to avoid this plan governance mistake: the potential loss of the attorney-client privilege.

Failing to Notify Participants of Plan Changes Can Be Costly

Among ERISA’s many notice and disclosure obligations, the requirement to timely inform participants of important plan changes is one that is too often overlooked.  Although there is no monetary penalty for failing to distribute a summary of material modifications (“SMM”) or an updated summary plan description (“SPD”) within the time periods set by the regulations, such a failure can still have severe consequences.  AT&T recently learned that lesson – to the tune of a six-figure judgment awarded to a deferred vested participant in its defined benefit pension plan.  (Helton v. AT&T, Inc., Sept. 16, 2011).

Investment Providers and Advisors May Now Provide “Conflicted” Advice to Plan Participants

Both the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”) generally prohibit fiduciary investment advisers from receiving compensation from the investment vehicles that they recommend to plan participants and IRA holders. However, the Pension Protection Act of 2006 amended ERISA to create a new statutory exemption from the prohibited transaction rules that is designed to expand the availability of fiduciary investment advice to participants in individual account plans and IRAs, subject to specific safeguards and conditions.

Employer Stock Funds Continue to Vex 401(k) Fiduciaries

Offering employees the opportunity to invest in the stock of their employer through a tax-favored vehicle like a Code Section 401(k) plan or employee stock ownership plan (“ESOP”) must have seemed like an innocuous idea at one time. Indeed, Congress expressed its approval of such arrangements by creating special tax benefits for both the sponsors of such plans (in the form additional deductions) and participants in them (in the form of favorable tax treatment on unrealized appreciation in the value of employer stock). Yet these “employer stock funds” are now the quickest path to the courthouse for employers that sponsor them and fiduciaries that administer them.

THE FIDUCIARY CORNER: Supreme Court Decision Requires New Focus on Participant Communications

A long-awaited ruling issued by the United States Supreme Court this spring gives employers both reason to celebrate and cause for concern. The Court’s decision in CIGNA Corp. v. Amara (May 16, 2011) reaffirms that courts will not enforce benefit rights that are described in a summary plan description (“SPD”) as if those rights were actually set forth in the plan document. At the same time that it foreclosed this avenue of relief for plan participants, however, the Court apparently opened up another by concluding that participants who are actually harmed by inconsistent or misleading plan summaries may have an equitable right to be compensated for that harm. As a result, participant communications are likely to be a new source of ERISA litigation in the coming years.

THE FIDUCIARY CORNER: Misplaced Enrollment Form Creates ERISA Liability for Sponsor

A small, Oklahoma-based employer recently learned that inattention to 401(k) plan governance can create costly corporate liability. It also learned that retaining the responsibility for collecting plan participants’ investment election forms, and then forwarding them to the plan’s recordkeeper, may not be advisable.

Fee Disclosure: A Three-Ring Circus for Plan Fiduciaries and Service Providers!

Employers sponsoring ERISA-covered, participant-directed, individual account plans (such as 401(k) or 403(b) plans) are constantly reminded of their fiduciary duties. In recent years, almost any discussion of these duties has included the issue of fees that are charged to participants’ accounts (or that otherwise affect a participant’s account balance).

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