ERISA Fiduciary Guidebook

DOL's Webcast Tomorrow Featuring the Form 5500 Electronic Filing Requirements

Tomorrow there will be a DOL webcast on the new Form 5500 electronic filing requirements which will go into effect for the 2009 plan year (for filings in 2010). I would highly recommend that practitioners and fiduciaries listen in for the following reasons:

(1) These webcasts are free to the public and generally contain great information that might not otherwise be available.

(2) At yesterday's Mid-Atlantic Pension Liaison Meeting that I attended in Washington, D.C., Michael Auerbach, Chief of the Division of Accounting Services for EBSA, gave a great overview of these new rules. Practitioners seemed surprised at the impact these rules will have on a number of aspects of the current 5500 process. A few of the surprises are as follows:

The current system had some grace periods built into the system that allowed plan sponsors to correct "deficient" filings before being hit with penalties. These grace periods usually followed the issuance of "form letters" to the sponsor telling them that they were deficient in some respect. It is my understanding after listening to the presentation, that these grace periods will be shortened and the sponsor will only have 45 days to correct a deficient filing before being hit with what are fairly significant penalties. Once the sponsor gets hit with penalties, the DOL indicated it will have very little discretion in providing relief to sponsors.

These filings will now be online and accessible immediately when filed by all relevant agencies--IRS, DOL, and PBGC--meaning deficiencies may trigger such things as unwanted audits.

Mr. Auerbach indicated that participants and beneficiaries will also be able to access the filing online by entering the sponsor's employer identification number. While such information was generally accessible on a more delayed basis through participant requests and other online resources, the information will now be immediately accessible once it is posted (i.e. a great place for plaintiffs' lawyers to hang out).

Fiduciary Duty to "Assess and Protect" Plan Interests

It has been reported that there were many ERISA-covered retirement plans impacted by the Madoff-Ponzi scheme.  As a result, the DOL issued a notice back in February (which you can access here) indicating that fiduciaries of ERISA plans should take "appropriate steps" to "assess and protect the interests of the plan and its participants and beneficiaries."  The DOL then went on to include in the notice a list of "appropriate steps" for fiduciaries to take in fulfilling their duty to "assess and protect" the interests of plan participants.  One of those steps included filing and asserting claims against the bankruptcy estate. 

While the pension funds asserting their claims in the Chrysler sale are not ERISA plans (read about the claims being asserted here and here), the actions that were taken are a good illustration of what the terms "assess and protect" might mean in the ERISA context - that is, pursuing in court whatever legal claims are necessary to ensure that participants' interests are protected.  In the Chrysler case, that pursuit followed a course that led all the way to the Supreme Court.

Surveys Relating to ERISA Fiduciary Performance and Litigation

The following surveys contain some great information about how fiduciaries are doing and the risks that they are facing:

• Grant Thornton:  Meeting Your Fiduciary Responsibilities - Retirement Plan Survey 2009

• PensionData.com:  ERISA Litigation Study - April 15, 2009

• Seyfarth Shaw:  Seyfarth Shaw’s Fifth Annual Workplace Class Action Litigation Report - January 13, 2009 

• Hewitt:  Hot Topis in Retirement 2009

• Towers Perrin:  Retirement Plan Governance - 2008 Survey Findings

(I have added a webpage providing links to the surveys.)

Some excerpts:

(1)  "The sponsor of an ERISA-covered plan has a fiduciary duty to operate the plan for the exclusive benefit of its participants and beneficiaries. It is worrisome that only 58% of plan sponsors said that they maintain minutes of meetings (down from 79% in last year’s survey), only 27% use an independent party to analyze plan fees (down from 45% in last year’s survey), and only 29% of respondents reported that they had established a clear chain of authority for their plan’s governance committee (down from 41% in last year’s survey). Sixty-five percent do not require plan management to periodically sign conflict-of-interest statements, which is especially alarming given the importance that the DOL places on the “exclusive benefit” rule."  Grant Thornton Survey

(2)  "More than any other area of workplace litigation, ERISA class actions took center stage in 2008 as case filings surged and settlements led all other types of class actions. While the top ten ERISA class action settlements totaled $1.818 billion in 2007, they increased exponentially in 2008 to $17.7 billion. Plaintiffs’ lawyers bringing ERISA class claims increasingly are pursuing two broad categories of cases, including “stock drop” suits in which the ERISA plan participants complain of the availability of employer stock as an investment option, and “plan administration” suits in which participants challenge excessive advisory fees and other mechanics of how the plan is run."  Seyfarth Shaw Survey

(3) "An ERISA plaintiff has several statutory options when preparing a complaint. . . ERISA fiduciary duties. . ranked third and fourth in terms of national litigation activity."  PensionData.com Survey

(4)  "Despite the challenging regulatory and legal environment, neither ERISA nor other government entities provide much detail as to what constitutes effective benefit plan governance. Plan governance is heavily influenced by litigation, as courts address this gap based on specific facts and circumstances presented in the context of ERISA lawsuits. One consequence is that plan sponsors have taken a wide variety of approaches to governance."  Towers Perrin Survey

(5)  "In 2009, respondents were asked their likely actions in managing the risk in their defined contribution plans.  Given the current environment, it is not surprising that plan sponsors are taking significant action to mitigate risk posed by their programs. . . Two-thirds of respondents are likely to review their plan governance structure (committee structure, fiduciary ownership, processes, and procedures).  Over half plan to benchmark plan administration and procedures to best practices, and about half plan to conduct a compliance review.  Additionally, employers are more likely to hire a third party to assist them in managing the plan, with 39% indicating they will hire a party to review the funds and the same number looking for assistance on reviewing plan fees." Hewitt Survey

ERISA Section 404(c) Webpage

I have created a webpage here that provides pertinent inks relating to Section 404(c) of ERISA, including links to some recent cases.  I have included a link to the recent Hecker v. Deere case as well as links to a couple of the Amicus Briefs filed in the petition for rehearing en banc.

Interplay of Bankruptcy Laws and ERISA Fiduciary Law

The Bankruptcy Case Blog has an interesting post here about how federal courts are split over the issue of whether fiduciary status under ERISA carries over into the federal bankruptcy laws.  Excerpt: 

The federal courts are currently split on the issue of whether the functional definition of "fiduciary" used in ERISA constitutes a “fiduciary” for purposes of the section 523(a)(4) discharge exception when the ERISA fiduciary fails to comply with ERISA obligations.  At stake in two recent cases was the status of a corporate officer's liability where employee contributions withheld by the corporate employer were not remitted to the pension and welfare funds.  In In re Mayo, the Vermont Bankruptcy Court sided with those courts finding that being an ERISA fiduciary makes a debtor a fiduciary under the Code.  As a result, the owner of a steel erection company, when declaring personal bankruptcy, was barred from discharging the $181,000 debt his company owed under a collective bargaining agreement to the employee benefit funds.  Meanwhile, the Sixth Circuit in In re Bucci went the other way in permitting a company president to discharge his liability for the debt his company owed to a multiemployer pension fund, holding that his status as an ERISA fiduciary was not sufficient to trigger the bankruptcy discharge exception. . .

Although the Supreme Court has denied certiorari for Bucci, the issue continues to divide the courts as the Mayo decision demonstrates.  It will be interesting to see if the current economic climate influences the courts to take a more lenient or strict view of what constitutes a fiduciary relationship in order to safeguard employee monies from employer misuse.

IRS's Online Internal Controls Questionnaire - A Helpful Tool for Monitoring Fiduciaries

The DOL holds that fiduciaries have a duty under ERISA to monitor their service providers who are involved in plan administration.  The IRS has recently posted on their website an Internal Controls Questionnaire which fiduciaries might find useful as a tool in determining whether their service providers have practices and procedures in place which will ensure compliance with plan terms and the statutory provisions of ERISA.  Read more about the Questionnaire in this post at Benefitsblog. 

More on the fiduciary duty to monitor service providers here and here.

DOL Comments on Fiduciary Status

Fiduciary duties under ERISA are often referred to in caselaw as "the highest known to law” (Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cir. 1982)).  And yet, many individuals are not aware that they are engaged in activities which would render them to be fiduciaries under ERISA. 

Under ERISA, individuals can become fiduciaries in three ways:  (1) By being named in plan documents (2) by being designated according to procedures in plan documents, or (2) by being engaged in activities for a plan which are fiduciary in nature (referred to as "Functional Fiducaries").  It is this Functional Fiduciary status which can often take people by surprise. 

The DOL has a couple of Interpretative Bulletins online which provide some guidance for determining who is a fiduciary under ERISA:

29 CFR 2509.75-5 - Questions and answers relating to fiduciary responsibility

29 CFR 2509.75-8 - Questions and answers relating to fiduciary responsibility under the Employee Retirement Income Security Act of 1974

In addition, the DOL last week in its webcast made these informal comments about the subject of who is a fiduciary under ERISA:

(1)  The DOL noted that services providers may become fiduciaries if they provide individualized advice (even though their provider contracts might provide that they are not fiduciaries).  The examples given by the DOL were accountants who provide investment advice to Trustees on a regular basis or recordkeepers who make final determinations regarding eligibility for benefits. 

(2)  The DOL also noted that giving investment advice is a fiduciary act, while providing investment education is not.  However, monitoring those who provide investment education to participants is a fiduciary act, according to the DOL.

Delay in Effective Date for Investment Advice Regulations

On January 21, 2009, the Department of Labor published final rules on the provision of investment advice to participants and beneficiaries of participant-directed individual account plans and to beneficiaries of IRAs. By memorandum dated January 20, 2009, the new administration directed Agency Heads to consider extending for 60 days the effective date of regulations that had been published in the Federal Register but not yet taken effect.

On March 20, 2009, the Department delayed the proposed effective date of the above regulations by 60 days. After receiving further comments on the regulations (which you can access here), the DOL issued this Notice today here indicating that it will further delay the effective date until November 18, 2009 (a delay of 180 days). The DOL provides the reason for the delay as follows:

The Department believes that the complexity and significance of the issues involved justify delaying the effective and applicability dates of the final rule for an additional 180 days in order to afford the Department time for further review.

Employee Benefits Research Tips and Techniques

I am posting my outline for a presentation given to the Louisville Employee Benefits Council on March 10th of this year.  Download Employee Benefits Research Tips and Techniques

DOL Posts ERISA Fiduciary Webcast

The DOL has posted on their website archives of the Webcasts they presented last week:

Getting It Right - Know Your Fiduciary Responsibilities Webcast Series - Part I

Getting It Right - Know Your Fiduciary Responsibilities Webcast Series - Part II

The webcasts discuss:

• Understanding the plan and fiduciary responsibilities under the plan,
  
• Selecting and monitoring service providers,
  
• Making contributions on time,
  
• Avoiding prohibited transactions, and
  
• Making appropriate disclosures to plan participants and filing annual reports to the government on time.