In this DOL Interpretative Bulletin issued over 20 years ago--29 CFR 2509.75-8 - Questions and answers relating to fiduciary responsibility under the Employee Retirement Income Security Act of 1974--the DOL answered this question:
In the case of a plan established and maintained by an employer, are members of the board of directors of the employer fiduciaries with respect to the plan?
The DOL's answer to that question was that Board members will be fiduciaries "only to the extent that they have responsibility for the functions described in section 3(21)(A)" of ERISA. It goes on to state that directors may be responsible for the selection and retention of plan fiduciaries, in which case "members of the board of directors exercise 'discretionary authority or discretionary control respecting management of such plan' and are, therefore, fiduciaries with respect to the plan." Nonetheless, the DOL qualifies that statement with the following:
However, their responsibility, and, consequently, their liability, is limited to the selection and retention of fiduciaries (apart from co-fiduciary liability arising under circumstances described in section 405(a) of the Act).
Generally, this means that, unless directors are doing things other than appointing and retaining fiduciaries, their responsibility and liability will be limited to such appointment and retention responsibilities. This has come to be known among practitioners and in case law as the "monitoring duty" and is a more limited duty that can be satisfied by overseeing the fiduciaries who are more directly involved in the hands-on administration and investment responsibilities of the plan. How that limited duty is satisfied has been the subject of much debate, but is generally seen as a duty to review credentials of appointees, document the process of appointing such fiduciaries, review their performance by receiving regular reports, and taking action by firing fiduciaries where the review process reveals unsatisfactory performance.
Can directors though, through the language of the plan documents, distance themselves from even this limited duty that is referenced in the above DOL guidance and case law? There have been a number of drafting strategies employed by attorneys to seek to accomplish this result since directors generally would like to avoid ERISA duties and liability. One was mentioned in this recent Q & A 19 posted at the Joint Committee on Employee Benefits website:
Question 19: A corporation and its directors and officers are aware of the view that a person who or that has a discretionary power to appoint a fiduciary is, to the extent of that power, a fiduciary – with some responsibility to monitor his, her, or its appointee’s performance to the extent needed in evaluating whether to remove the appointee. In establishing a new pension plan, the corporation, by its governing board, adopts a plan document that specifies that a particular named person is the plan’s administrator, trustee, and named fiduciary. Although the plan document includes an amendment provision, that provision states that an amendment that purports to change or remove the administrator, trustee, or named fiduciary is void. The plan document also provides that no person other than a court can remove the plan’s administrator, trustee, or named fiduciary, and that any such purported removal is void. Is it clear that the corporation and its directors and officers need not monitor the fiduciary’s performance?
Please note the proposed answer from the Joint Committee:
Proposed Answer 19: Yes. A person can’t have a duty to consider whether to perform an act that would be void.
The DOL's answer, however, begged to differ:
DOL Answer 19: The DOL staff disagrees with the proposed answer. The selection of plan fiduciaries, such as a plan’s administrator, trustee, or named fiduciary, is a fiduciary function and those who appoint the fiduciaries remain responsible for monitoring those whom they have selected, regardless of any plan language to the contrary. Any amendment that would purport to eliminate a plan fiduciary’s responsibility to monitor, and, if need be, change or remove the plan's administrator, trustee, or named fiduciary would be contrary to ERISA. See also ERISA section 404(a)(1)(D) – A plan fiduciary shall discharge his duties with respect to a plan in accordance with the documents and instruments governing the plan insofar as such documents are consistent with the provisions of Title I and title IV. See also 29 C.F.R. § 2509.75-8, Q D-4, Amicus Brief of DOL in Tittle v. Enron, In the United States District Court for the Southern District of Texas, Houston Division, Civil Action No. H-01-3913 and Consolidated Cases, Aug. 30, 2002.
While the DOL's response here is not an official pronouncement and many lawyers might disagree with their conclusions, the response does indicate that drafting such provisions with the intent of relieving directors from liability might in the end meet with opposition from the DOL. How courts will view this is unknown.
Bottom Line: Approving or adopting plan documents without giving careful thought to plan fiduciary structure is foolish in today's legal environment, with the threat of lawsuits from participants being a real risk as plaintiffs' lawyers now view ERISA as a fertile ground for recovery. Many employers and Boards have in the past taken a rather lackadaisical approach to plan documentation, trying to cut costs by utilizing documents supplied by vendors and record-keepers. However, it is becoming more common for plan sponsors to engage legal counsel in order to ensure that the plan governance structure has been optimized.
Read my previous post here at Benefitsblog on Directors and the Duty to Monitor under ERISA.
