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Fred Reish, ESQ. REISH REICHER FredReishReish linkedin

2. Co-Fiduciaries. ERISA provides, in section 405, for liability for co-fiduciaries in three specified situations.However, to be a co-fiduciary, a person must first be a fiduciary.. . Note: The marketing" co-fiduciary and the legal" co-fiduciary.. 3. Definition of Fiduciary. ERISA 3(21)(A) provides:.

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Fred Reish, ESQ. REISH REICHER FredReishReish linkedin

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    2. 2 Co-Fiduciaries ERISA provides, in section 405, for liability for co-fiduciaries in three specified situations. However, to be a co-fiduciary, a person must first be a fiduciary.

    3. 3 Definition of Fiduciary ERISA §3(21)(A) provides:

    4. 4 Definition of Fiduciary

    5. 5 Fiduciary Status of Advice §2510.3-21 Definition of “Fiduciary”

    6. 6 Fiduciary Status of Advice

    7. 7 Fiduciary Status of Advice

    8. 8 Fiduciary Status of Advice

    9. 9 Definition of Fiduciary Is an attorney, accountant, actuary or consultant who renders legal, accounting, actuarial or consulting services to an employee benefit plan (other than an investment adviser to a plan) a fiduciary to the plan solely by virtue of the rendering of such services, absent a showing that such consultant

    10. 10 Definition of Fiduciary

    11. 11 Definition of Fiduciary No. However, while attorneys, accountants, actuaries and consultants performing their usual professional functions will ordinarily not be considered fiduciaries, if the factual situation in a particular case falls within one of the categories described in clauses (a) through (d) of this question, such persons would be considered to be fiduciaries within the meaning of section 3(21) of the Act.

    12. 12 Definition of Fiduciary Are persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures, but who perform the following administrative functions for an employee benefit plan, within a framework of policies, interpretations, rules, practices and procedures made by persons, fiduciaries with respect to the plan:

    13. 13 Definition of Fiduciary

    14. 14 Definition of Fiduciary

    15. 15 Definition of Fiduciary No. Only persons who perform one or more of the functions described in 3(21)(A) of the Act with respect to an employee benefit plan are fiduciaries. Therefore, a person who performs purely ministerial functions such as the types described above for an employee benefit plan within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary . . . .

    16. 16 Co-Fiduciary Liability under ERISA [A] a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstance:

    17. 17 Co-Fiduciary Liability under ERISA

    18. 18 Co-Fiduciary Liability “Participating knowingly in or concealing a breach. E and F are co-trustees and the terms of the plan allow no investments in commodity futures. If F invests in such futures at the suggestion of E, both E and F will be liable for the breach. Similarly, if F independently invests in commodity futures and tells E of this investment, E would be liable as well as F for the breach if E concealed the improper investment.”

    19. 19 Co-Fiduciary Liability “Enabling the breach. Co-trustees E and F jointly manage the plan assets. E improperly allows F to have the sole custody of the plan assets and makes no inquiry as to his conduct. F is thereby enabled to sell the property and to embezzle the proceeds. E is liable for a breach of fiduciary responsibility.”

    20. 20 Co-Fiduciary Liability “Failure to remedy. Based on the first example, above, if E has authority to do so and it is prudent under the circumstances, he may be required to dispose of the commodity futures acquired by F. Alternatively, the most appropriate steps may include notifying the plan sponsor of the breach or proceeding to an appropriate federal court for instructions, or bringing the matter to the attention of the Secretary of Labor.”

    21. 21 Actual vs. Constructive Knowledge The courts are split on whether a co-fiduciary must have actual knowledge of the fiduciary’s breach. Contrast Davidson v. Cooke, 567 F.Supp. 225, 233 (E.D. Va. 1983), aff’d mem. 734 F.2d 10 (4th Cir. 1984) (actual knowledge required), with Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 283 (2d Cir. 1992) (holding that a “defendant who is on notice that conduct violates a fiduciary duty is chargeable with constructive knowledge of the breach if a reasonably diligent investigation would have revealed the breach.”)

    22. 22 Consultant/Adviser Project EBSA’s newest National Project focuses on the receipt of improper, undisclosed compensation by pension consultants and other investment advisers. EBSA’s investigations will seek to determine whether the receipt of such compensation violates ERISA because the adviser/consultant used its position with a benefit plan to generate additional fees for itself or its affiliates.

    23. 23 Consultant/Adviser Project When ERISA violations are uncovered, EBSA will seek corrective active for past violations as well as prospective relief to deter future violations. EBSA may also need to investigate individual plans to address such potential violations as failure to adhere to investment guidelines and improper selection or monitoring of the consultant or adviser. The CAP will also seek to identify potential criminal violations, such as kickbacks or fraud.

    24. 24 Criminal Violations of the IRC “Any person who—

    25. 25 Criminal Violations of the IRC

    26. 26 Criminal Violations of the IRC . . . . . (c) Whoever corruptly—

    27. 27 The Good Samaritan TPA TPA suspected that the company was not depositing the employees’ deferrals into the trust. TPA notified the plan trustees that the failure to deposit deferrals into the trust violated ERISA and DOL regulations and could be considered both a fiduciary breach and a prohibited transaction under ERISA. CSA 401(k) Plan v. Pension Professionals, Inc., 195 F.3d 1135 (9th Cir. 1999).

    28. 28 After consulting with counsel, TPA agreed to continue providing its services on the conditions that The Good Samaritan TPA

    29. 29 When TPA received what it believe to be falsified financial statements from the company, TPA resigned. The company ultimately pleaded guilty to criminal charges of embezzling the missing plan assets. The Good Samaritan TPA

    30. 30 The participants sued TPA alleging that TPA became a fiduciary to the 401(k) plan when it imposed conditions on the company for continuing to provide administrative services. The theory was that, in imposing these conditions (that is, if the deferrals were not deposited according to the proposed schedule, TPA would resign), it exercised discretionary authority or control over the timing of deposits to the plan trust. The Good Samaritan TPA

    31. 31 The court rejected plaintiff’s argument. It noted that the functions performed by TPA: The Good Samaritan TPA

    32. 32 The court found that the conditions TPA imposed for its agreement to continue providing services likewise did not give rise to a fiduciary relationship: The Good Samaritan TPA

    33. 33 In support of this argument, TPA had produced a letter it wrote to the company, noting that it had “no authority, nor the ability, to make the needed changes to the 401(k) Plan; that is your responsibility.” The court seized on this evidence, and recognized that TPA’s role did not fit ERISA’s functional definition of fiduciary. TPA’s decision to clearly describe where its “authority” ended should serve as a lesson to any TPA facing a similar dilemma. The Good Samaritan TPA

    34. 34 Knowing Participation in a PT The Supreme Court has held that a non-fiduciary may be liable for participation in a prohibited transaction. See, e.g., Harris Trust & Savings Bank v. Solomon Smith Barney, Inc., 530 U.S. 238 (2000).

    35. 35 TPAs as Possible Fiduciaries TPAs affiliated with brokers and RIAs. TPAs with non-disclosed compensation. TPAs who cover up fiduciary breaches and prohibited transactions. TPAs who advise on investments, e.g., 412(i) plans. TPAs who control the client—”He’ll do anything I tell him to do.” TPAs who exercise discretion in the administration of the plan.

    36. 36 Recordkeepers as Possible Fiduciaries Receipt of revenue sharing—disclosure and treatment. Expense recapture accounts—if not deposited in trust. Retention of float (DOL FAB 2002-03). Changes without Aetna process (DOL Advisory Opinion 97-16A). Change of custodian—and compensation. Transfer of funds on termination.

    37. 37 Investment Advisers RIAs as acknowledged fiduciaries. Broker-dealers as functional fiduciaries. Change of custodian: Use of plan assets. Advice to participants. Fiduciaries for “non-fiduciary” issues. Amending agreements.

    38. 38 Issues for Co-Fiduciary Breaches Failure to deposit deferral. Change of providers. Excessive compensation to adviser. Non-disclosed compensation. DOL consultant project.

    39. 39 Parting Thoughts Full disclosure Avoid conflicts written agreements with Aetna provisions

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