PLANADVISER - November/December 2019 - 46

fiduciary fitness
The Extent of Obligation
New committee members need not look for breaches to repair
O
ne of the most important things an adviser and his
plan sponsor client can do for the members of the
sponsor's retirement plan committee is to supply
them with robust and periodic fiduciary training. This is
an important measure in minimizing fiduciary risk. While
fiduciary training is not required under the Employee Retirement
Income Security Act (ERISA)-and some studies indicate
that only a minority of sponsors provide training to their
committee, it is a best practice and one we and many other
law firms follow.
For example, in the event of a Department of Labor (DOL)
audit, the investigating agent will frequently inquire about
the plan's fiduciary training program. While there is no
checklist of items to be covered in such a program, there
will generally be an overview of ERISA and discussion of
fiduciary responsibilities and potential
a loss results from its failure to take remedial steps.
The primary issue before the District Court for the
Northern District of Georgia was whether an obligation
to remedy a breach of a fiduciary duty by a prior trustee
required the successor trustee to have actual knowledge of
the breach, or whether constructive knowledge was sufficient.
The District Court noted that only one unreported
district court case had applied the constructive knowledge
standard; therefore, it followed the majority position.
The plaintiff's position was that Title I of ERISA is heavily
fiduciary liability.
Committee members will be advised to become familiar
with the plan and its investment policy statement (IPS), also,
if there is a committee charter, the committee's responsibilities
under that document.
Such training sessions are generally provided to a
committee as a group, rather than individually. When a new
committee member is appointed, he should receive the same
type of training. To the extent that the practices for fiduciaries
have been memorialized at the plan, he should be given
a hard or electronic copy. However, a recently decided case
from the Northern District of Georgia, Fuller v. SunTrust Bank,
raised the question of the extent of an incoming committee
member's obligations.
The starting point for an analysis of fiduciary obligation
is ERISA Section 409(b), which provides that no fiduciary is
liable for a breach of fiduciary duty committed by his predecessor
either while that person was acting as the fiduciary
or afterward. However, shortly after the enactment of ERISA,
the DOL issued advisory opinions explaining the limits of
that statutory language: If a fiduciary obtains knowledge of
a breach committed by a prior fiduciary, that successor fiduciary
has a duty to remedy it.
Case law has followed the DOL approach, and there is also
authority that a fiduciary duty may exist to review existing
investments, at least within a reasonable time, and to take
reasonable steps to remedy any discovered breach. See the
following cases: Morrissey v. Curran, Buccino v. Continental
Assurance Co. and Pension Benefit Guaranty Corporation v. Greene.
To this extent, the interpretations of ERISA Section 409(b) are
consistent with the common law of trusts, which imposes
a duty on a successor trustee to remedy a breach of a prior
trustee and imposes a liability on the successor to the extent
based upon the common law of trusts and that the Restatement
(Second) of Trusts takes a contrary position-i.e., " A
trustee is liable to the beneficiary for breach of trust if he
knows or should know of a situation constituting a breach
of trust committed by his predecessor and he improperly
permits it to continue. "
The District Court was not persuaded, noting that no
courts had relied upon this section of the restatement in
addressing the issue. The District Court indicated that
the result might be different if the plaintiffs could establish
willful blindness on the part of the defendants-i.e., if
the latter were highly suspicious of certain prior fiduciary
conduct but purposely sought to avoid looking into it.
The court further concluded that, even if constructive
knowledge were the appropriate standard, the plaintiffs
could not establish any liability. For example, the fact that
the plan utilized proprietary funds, and that several sponsors
had been sued for utilizing such funds in their plans,
was insufficient to establish knowledge of a fiduciary breach.
The incoming committee members had no affirmative duty
under ERISA to scour prior committee members or interrogate
other members. Further-if for no other reason than the
possibility of review by the DOL or a plaintiff in litigation-
the committee's minutes have a positive spin to them.
As is frequently the case under Title I of ERISA, there
are no bright lines to be drawn. A new committee member
should try to become as knowledgeable about the plan and
its current activities as possible, and if he becomes aware
of something that seems problematic, the matter should be
pursued. He has no obligation, however, to satisfy himself
that the plan is free of breaches that must be addressed.
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 32 years. Wagner is a frequent lecturer and has
authored numerous books and articles.
46 | planadviser.com November-December 2019
Art by Tim Bower
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