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.
Although the Court’s June 13, 2011, decision in United States v. Jicarilla Apache Nation did not directly involve ERISA, it has important implications for the relationship between plan sponsors and their lawyers. In this case, the Court recognized the “fiduciary exception” to the attorney-client communications privilege. Under ordinary circumstances, that privilege shields the lawyer’s client from having to disclose confidential communications between the two. But when a fiduciary of a trust seeks advice from a lawyer concerning the administration of the trust, the fiduciary cannot assert the privilege against the trust’s beneficiaries. This is because, in these circumstances, the lawyer’s advice is being obtained for the benefit of the beneficiaries. In a sense, the advice – and thus the privilege – belongs to the beneficiaries, and not the fiduciary.
The Court’s analysis in Jicarilla Apache Nation is not inconsistent with lower court rulings over the years, but it highlights a key tenet of sound ERISA plan governance. If the sponsoring employer is also an ERISA fiduciary with respect to the plan, or if the employer pays for legal advice out of the plan’s assets, it is much more difficult to protect against the disclosure of confidential communications involving the plan. Many benefit plan documents – especially prototype documents – automatically designate the “company” or “employer” as the plan’s administrator and/or named fiduciary. Unless the sponsor takes affirmative steps to shift that fiduciary status to some else – such as an administrative committee or individual – the sponsor puts its communications with legal counsel at risk of disclosure in a participant lawsuit or Department of Labor audit.