Tip for July 2019
Committee members can be liable for fiduciary violations of previous committees
If you’re a member of a retirement plan committee, you could be responsible for a breach in your employer’s ERISA fiduciary duty even if it occurred before you were assigned to serve on the committee.
We are asked frequently by members of committees that oversee retirement plan operations, which includes investments, this question: “can I be held responsible for the committee’s violation of federal pension law if it happened before I joined the committee?”
A federal judge recently answered that question during a lawsuit against a retirement plan sponsor, which also sued the plan’s fiduciaries.
One of the named individuals was not a member of the committee before the alleged violation occurred. His attorney filed a motion with the court to have the new committee member discharged from the lawsuit. The court’s reply included useful instructions on how liability for decisions by a previous committee affects members who were added to the committee after a previous committee’s decisions were made.
Legal responsibility for decisions made by “Predecessor Fiduciaries” depends on what a “Successor Fiduciary” knows. The judge revealed that a Successor Fiduciary can be held liable for a breach of the committee’s decisions if he or she were aware that the Predecessor Fiduciaries had breached their duties. Awareness of such a violation requires “actual knowledge” of the breach in order for liability to embrace a Successor Fiduciary.
A Remedy for Retroactive Liability
Newly appointed members of employee benefit plan committees can avoid the strain of determining if they have actual knowledge of breaches in the plan’s prior fiduciary practices by employing these tips:
- Verify that the plan is administered around a framework of predefined controls;
- Review the plan’s annual assessments to determine how well the plan’s fiduciary practices align with the framework;
- Confirm that the plan’s vendors were selected by a formal well documented process;
- Inspect the fiduciary file to ensure that the vendors are being monitored closely;
- Examine the committee’s method, scope, and frequency for complying with the Reasonable Fee rule;
- Verify that the committee has produced formal minutes for all of its meetings; and
- Analyze how the committee tests for conflicts of interest between the vendors and the plan.
Contact us for more details on any of the above listed topics.
