A recent class action lawsuit highlights an often neglected yet important item of fiduciary concern.
The plaintiffs in this case have asserted claims for breach of the fiduciary duties of prudence and failure to monitor fiduciaries. Nothing new so far; however, in addition to naming the typical plan fiduciaries as defendants, the lawsuit also targets members of the board of directors, as well as other officers of the firm who serve on the retirement plan’s fiduciary investment committee.
The complaint indicates the “Taylor Corporation, ... is the Plan sponsor, the Plan Administrator (as defined in Section 3(16) of ERISA), and a named fiduciary,” (highlights added).
You may be wondering why the board of directors is implicated in this litigation. The reason is the Taylor Company’s plan document indicates “the company” is the named fiduciary for the plan. The “named fiduciary” identifies the plan’s primary fiduciary (the main decisionmaker for the company).
In a corporation with a board of directors, where “the company” is identified as the named fiduciary the board is considered to be the main decision-maker on behalf of the company and thus,the primary fiduciary of the plan per ERISA. Other co-fiduciaries may also be liable for any fiduciary breaches they may be involved with. This is a concept often misunderstood by many plan fiduciaries and board of directors members.
Fortunately, there is a simple way to offset this liability, if done prior to a fiduciary breach taking place. The solution is to have the board delegate fiduciary responsibilities to individuals or a committee, as permitted by their plan document. The board should formally delegate responsibilities pursuant to formal board action (may be reflected in board meeting minutes or board resolutions) and adopt a committee charter which identifies the company’s intended named fiduciary(ies). Others can be delegated for specific fiduciary responsibilities as co-fiduciaries who should sign on acknowledging their roles and responsibilities. This simple action essentially helps to insulate the board of directors from liability for day-to-day actions taken by delegates the board may often not even possess knowledge of. Still, the board remains the named fiduciary under the plan document, so they have a fiduciary responsibility to monitor their delegates. This can be accomplished as simply as reviewing meeting minutes taken by the delegates during the course of the plan year. As long as no action taken by the delegates seem unusual or not in the best interests of participants, the board should be relatively insulated from potential liability.
Contact your financial professional for a sample board resolution, Committee Charter, committee acknowledgements, and committee resignation/removal templates. These documents are easily customizable and ready for implementation upon board resolution. It is considered best practice for all plans to utilize these documents, as they explicitly identify individuals/entities intended to be fiduciaries for the plan’s administrative, operational and investment responsibilities.
For more information on fee litigation and how to mitigate potential liability, please contact a KerberRose Trusted Retirement Advisor at (715) 524-6626 or 401kservices@kerberrose.com.
The class action complaint can be found at: