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Fiduciary Liability Under ERISA - “It is what it is” by Thomas G. McKeon

 

A recent decision of the 10th Circuit Court of Appeals is a reminder that fiduciary status and liability under ERISA often is determined by the actions of the parties involved rather than labels assigned to them.  In Coldesina v. Simper, the court held that a third party administrator was a fiduciary, and remanded the case for the trial court to determine if the plan administrator should be held liable for funds embezzled by the plan’s investment advisor. 

 

ERISA imposes liability on fiduciaries of retirement plans.  ERISA defines fiduciaries as:  (i) those exercising discretionary authority or control in management of the plan, (ii) those exercising any authority or control respecting management or disposition of assets, (iii) those rendering investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or property of the plan, (iv) those having authority or responsibility to render investment advice described in (iii) above, and (v) those having any discretionary authority or responsibility in administration of the plan.

 

Included are persons formally given authority with respect to a plan, as well as those who exercise authority, even if not formally designated.  Sometimes fiduciary status depends on whether or not a person exercises discretion.  In other cases, exercise of discretion is not determinative.

 

Third party administrators in many cases operate under the direction of another plan fiduciary, and as a result, believe that they do not have any fiduciary exposure.  However, as Coldesina suggests, fiduciary liability still can result if a plan administrator exercises control over plan assets.

 

In the case, a dentist established a retirement plan in 1992.  He was dissatisfied with investment performance and in 1999 hired a friend as an investment advisor to the plan.  At the encouragement of the advisor, the plan sponsor selected a new third party administrator as well.

 

The plan administrator performed all administrative functions for the plan; preparing reports, documenting loans and preparing and filing tax forms and account summaries.  He probably would not have been a fiduciary if this was all he did.

 

However, the administrator also received plan contributions from the sponsor, depositing them into his business account before writing a check to invest the funds as specified by the advisor.  He also made loans and other disbursements.  Eventually, the investment advisor directed the plan administrator to invest new contributions by writing checks directly to the investment advisor’s company, purportedly so the advisor could track commissions.  The advisor never made the contributions. 

 

Though the administrator claimed to be following the directions of the advisor, the court determined that the plan administrator was a fiduciary with respect to the plan, finding that he exercised control over the management and disposition of plan assets.  The court held that discretion was not required for its finding.

 

“[A]ny authority or control over plan assets is sufficient to render fiduciary status. . . .  Mr. Madsen had total control over the plan’s money while it was in his account. . . .    [H]e could have withdrawn the plan’s money to pay his business expenses or go on vacation. . . .  Indeed, this practical reality is precisely why control over assets is treated differently than control over management.”

 

Plan sponsors and administrators should review current practices and procedures in light of the holding in Coldesina.  If you have any questions or need help with your employee benefits needs, please call the Firm’s Human Resources Group.

 

 

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