PLANADVISER - November/December 2018 - 47

fiduciary fitness
ERISA Section 409(b)
Fiduciaries can be personally liable-even for a predecessor's breach
WHEN ERISA
[Employee
Retirement
Income Security Act] attorneys speak
with their clients regarding fiduciary
liability under ERISA Section 409, the
focus is almost entirely on Section 409(a),
which provides that if fiduciaries breach
their duties under Title I of ERISA, they
are personally liable to make good to the
plan any losses it experienced resulting
from that breach and to restore to it any
profits the fiduciary derived from using
plan assets.
A breaching fiduciary is also subject to
" ... they are
personally
liable to make
good to the
plan any losses
it experienced
such other equitable or remedial action
that a court might impose, including the
person's or entity's removal as a plan fiduciary.
In addition, under ERISA Section
502(l), the breaching fiduciary is subject
to a civil penalty of 20% of the applicable recovery amount.
That guidance is at least facially more relevant than the
statement under Section 409(b) that " no fiduciary is liable
for a breach of fiduciary duty under this title if such breach
was committed before he became a fiduciary or after he had
ceased to be a fiduciary, " although it is questionable whether
409(b) can be used as a shield to protect a prospective fiduciary
from liability arising out of his, or its, own misconduct,
such as the concealment of material facts during the negotiation
of an investment management contract that led to
fiduciary status.
Note the case of International Brotherhood of Painters and
Allied Trade Union and Industry Pension fund v. Duval. Similarly,
in Mathis v. American Group Life Insurance Co., the Missouri
District Court questioned whether Section 409(b) would
be applicable if a fiduciary had knowledge of or a role in a
predecessor's acts or omissions, before becoming a fiduciary.
However, while a prior plan fiduciary may disregard
what occurred after he left, this is subject to the caveat that
liability may be imposed if, before he ceased being a fiduciary,
he set in motion the forces that caused the actual damage
of which a plaintiff complains. Note the case of Sheet Metal
Workers v. National Pension Fund. The same is not equally true
of a successor trustee, as evidenced by the recent Maryland
District Court case of Feinberg v. T. Rowe Price Group Inc.
The Maryland District Court relied upon a 1976 Department
of Labor (DOL) advisory opinion, which it held was
" entitled to respect " under Supreme Court guidance because
of its " power to persuade. " The DOL explained that Section
409(b) " did not exempt an ERISA fiduciary from carrying
resulting from that
breach and to
restore to it ... "
out its responsibilities under Title I of
ERISA. " For example, although a fiduciary
may not be liable under Section 409 for
the acts of predecessor fiduciaries, if he
knows of a breach of responsibility that
one of them committed, he would be obligated
to take whatever action is responsible
and appropriate under the circumstances
to remedy it. Failure to take
such action would constitute a separate
breach of fiduciary responsibility by the
successor trustee.
As set forth in Section 223 of Restatement
of Trusts (Second), also cited by the
District Court in Feinberg, common law
imposes liability on a successor trustee
to remedy the breach of a prior trustee
and imposes liability for the breach of the
duty to the extent to which a loss results from the successor
trustee's failure. This analysis is also consistent with ERISA
Section 405(a)(3), which imposes co-fiduciary liability
if a fiduciary has " knowledge of a breach by such other
fiduciary, unless he makes reasonable efforts under the
circumstances to remedy such breach. " However-at least
according to some courts-to avoid undermining Section
409(b), for there to be co-fiduciary liability for a successor
trustee, he would need to have actual knowledge: 1) that the
other person was a fiduciary with respect to the plan; 2) that
the other person participated in the acts that constituted
the breach; and 3) that the act in question was a breach.
Finally, it should be noted that some district courts
have reached a contrary conclusion. For example, the
recently decided Tennessee District Court case of Hatmaker
and Edwards v. Consolidated Nuclear Security favorably cited
Beauchem v. Rockford Products, in which the District Court
concluded that " allowing a fiduciary to be liable for failing
to correct a breach by prior fiduciaries would destroy the
protection of ERISA Section 1109(b). "
Takeaway: Nothing new in Feinberg but a reminder that a
new fiduciary does not have " a hall pass " with respect to prior
conduct of his predecessor that was a breach of fiduciary duty.
Marcia Wagner is an expert in a variety of employee benefits and
executive compensation areas, including qualified and nonqualified
retirement plans, and welfare benefit arrangements. She is a summa
cum laude graduate of Cornell University and Harvard Law School and
has practiced law for 31 years. Wagner is a frequent lecturer and has
authored numerous books and articles.
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