Transcript MFA – Moody, Famiglietti & Andronico, LLP

Understanding Your Fiduciary
Responsibilities
Russell A. Gaudreau, Jr.
The Wagner Law Group
Copyright 2009. Moody, Famiglietti & Andronico, LLP. All Rights Reserved.
Goals
EDUCATION
The law requires that plan fiduciaries become educated.
“A pure heart and an empty head” is not an adequate
defense. (See Appendix A for specific examples)
DOCUMENTATION
Document all Fiduciary Activities
ACTION
Identify action steps that protect plan fiduciaries.
2
What Is At Risk?
All plan fiduciaries are personally liable.
Homes
Investments
Stock
Options
Bank
Accounts
Unless protected by a safeharbor, fiduciaries are liable for 100% of
investment losses, measured against what assets would have otherwise
grown to; fiduciaries are also liable for the legal expenses and
professional fees for the defense.
3
Who Is a Fiduciary?
Examples of Fiduciaries:
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Plan Sponsor
Retirement Plan
Committee Members
Trustees
Board of Directors
Company Officers
HR Director
Retirement Plan
Advisors
Generally not Fiduciaries:
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Attorneys
Accountants
Actuaries
Anyone making business
decisions (whether to
establish, amend, freeze,
or terminate the plan) –
These individuals are
acting on behalf of the
business and not the
plan in making these
decisions
“Functional Fiduciary” – No express appointment or delegation of fiduciary authority,
but is functionally considered in control or in possession of authority over the plan’s
management, assets, or administration
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Fiduciary Responsibility Under 404(a)

Exclusive Benefit: A fiduciary shall discharge his duties with respect
to a plan solely in the interest of the participants and beneficiaries
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Prudent Man: A fiduciary shall perform his duties with a high
standard of care, skill, prudence, and diligence
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Hiring service providers
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Hiring investment advisers
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Diversification Requirement: A fiduciary shall diversify the
investments of the plan so as to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not to do so
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Act in in accordance with the governing plan documents
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General Requirement of Plan Fiduciaries
At the heart of ERISA compliance is the duty of the
plan sponsor (fiduciary) to act prudently.
“Procedural Prudence” is achieved in three ways:
Research and
understand
your responsibilities
6
Take action – Do
what is required to
keep the plan in
compliance
Document all
compliance-related
activities
Fiduciary Responsibility Under 404(c)
404(c) PLANS REQUIRE THAT PARTICIPANTS:
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Have the opportunity to choose from a broad range of
investment alternatives (which are adequately diversified)
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Can give investment instruction with a frequency which is
appropriate
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Can obtain sufficient information to make informed investment
decisions
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Prohibited Transactions
“Certain transactions are prohibited under the law to prevent dealings with parties who
may be in a position to exercise improper influence over the plan.” ~ [Department of
Labor]
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“Parties in interest” are prohibited from doing business with the
plan
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Employer
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Union
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Fiduciaries
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Service Providers
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Statutorily defined owners
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Officers
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Some relatives
Fiduciary Litigation
A “[plaintiff law firm’s erisafraud.com] website lists 14 separate class suits pending
against 401(k) plan fiduciaries, as well as 23 other “investigations” the firm is conducting.
The site requests the assistance of anyone with knowledge about the companies under
investigation or, for that matter, about “any other possible ERISA case.”
~ [Pensions & Investments, 2/19/08]
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Qualified retirement plans are the newest targets for plaintiffs
attorneys
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Typically class action suits for plan-wide lawsuits
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LaRue v. DeWolff, Boberg & Associates opened judicial
system to individual lawsuits where only a single participant
is affected by fiduciary breach
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Deep pockets of the company, directors, and officers
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Easier to litigate than fraud causes of action due to lower legal
standards that are defined in ERISA
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Fiduciary Litigation – The First Wave
(Company Stock)
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Regulatory and Legislative reactions
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DOL issued prohibited transaction class exemption for
litigation settlements
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PPA diversification requirements
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Participants with at least 3 years of service (or beneficiary thereof)
must be allowed to diversify out of company stock
Must have at least 3 diversified alternative options available
Divestment/reinvestment just be allowed at least quarterly
Atypical restrictions or conditions on divestment may not exist on
company stock
Fiduciary Litigation – The Second Wave
(Expenses)
“Fourteen months after the first round of 401(k) fee lawsuits was filed, five cases are
awaiting trial and lawyers are laying groundwork for more suits alleging ERISA violations
involving defined contribution plans.”
~ [Pension & Investments, 2/18/08]
“The Securities and Exchange Commission confirmed that it has begun a broad based
inquiry into 401(k) fees …”
~ [OC Register, 7/11/04]
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Fiduciary responsibilities:
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Understanding and comparing or benchmarking fees and expenses
Disclosing fees to participants and beneficiaries
Defraying reasonable expenses of plan administration