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Tips for Prudent Governance by Plan Fiduciaries

Fiduciary Rules and Practices

How well a plan fiduciary fulfills its duties and complies with ERISA is always important, but heightened enforcement efforts bring that into sharper relief, write two experts in legal issues and practices concerning plan governance. 

What fiduciaries and committees do—and don’t do—are subject to greater scrutiny today, warn Winston & Strawn LLP partners Nancy Gerrie and Joanna Kerpen. They cite the Department of Labor (DOL), courts, insurers and attorneys representing plaintiffs in class action suits as sources of the heightened scrutiny. In “Best Practices for ERISA Plan Fiduciary Governance,” they discuss some best practices ERISA plan fiduciaries should consider in striving to exercise prudence in governing a plan.  

Delegation of Authority

In most cases, Gerrie and Kerpen say, a board of directors will delegate nearly all its fiduciary authority to individuals or committees to run a ERISA plan; however, the board still must monitor the activities of those to whom it delegated authority. They suggest that delegations of authority:

  • be made in writing; 
  • are accurate and up to date; 
  • be considered in light of a corporate reorganization or changes in positions; and 
  • are updated through a written board resolution.

Committees

Gerrie and Kerpen discuss matters concerning committee activity from a variety of perspectives. 

Necessity of Committees. ERISA does not require that there be any committees at all, Gerrie and Kerpen note. Despite the lack of a statutory requirement, they argue, employers still may find advantages to forming a committee, because: 

  • most employers find the fiduciary duties of running a plan too burdensome for one person to discharge; and
  • committees make it possible to benefit from a diversity of opinions and backgrounds, which they argue offers “the best protections for plan participants, the employer and the fiduciaries themselves.” 

Number of Committees. The number of committees an employer may need, Gerrie and Kerpen write, depends in large part on how big the employer is and what benefits it offers. In addition, they suggest, an employer may establish committees to perform specific roles, such as handling investments, retirement plans, and health and welfare plans. 

Committee Charters. Gerrie and Kerpen advocate adopting a committee charter, calling them “an invaluable trove of information” that can protect ERISA fiduciaries from hostile investigations regarding committee actions. They recommend that a charter contain at least the following: 

  • description of the plan;
  • types of duties;
  • allocation of duties;
  • types of members;
  • how many members there will be;
  • how members will be appointed and removed;
  • frequency of meetings;
  • how meetings will be conducted; and
  • how the committee will delegate authority. 

Meeting Minutes. Minutes of committee meetings are “very important,” say Gerrie and Kerpen, for documenting decisions and demonstrating to government regulators that they committee was thoughtful in carrying out its duties. However, they caution, it is important to balance preparing minutes that reflect procedural prudence with not including contents such as unanswered questions that could invite government scrutiny. 

ERISA Appeals Committees. In most cases, write Gerrie and Kerpen, a third-party service provider or staff members who handle benefits will handle an ERISA benefit claim. But if the claim is denied and there is an appeal, an appeals committee will handle it. The appeals committee should not consist of low-level employees who are answerable to the party that made the decisions that led to the original claim, Gerrie and Kerpen suggest. This, they argue, will help obviate allegations that the appeals committee “rubber-stamped” those decisions and avoid any adverse results. 

Monitoring Committees. Employers that sponsor an ERISA plan generally have a fiduciary duty under ERISA to monitor the activities of parties to which it has delegated the majority of its fiduciary duties, Gerrie and Kerpen remind. To fulfill this duty, they say, employers may provide boards of directors with an annual report summarizing fiduciary committees’ activities. 

Training. Gerrie and Kerpen argue that fiduciaries should be trained periodically on their fiduciary duties. This, they say, protects plan participants, the employer and the fiduciaries themselves. And the fiduciary insurer may require it, as well. At the very least, they write, fiduciaries should understand: 

  • what laws pertain to ERISA plans;
  • what their primary fiduciary duties are; 
  • how fiduciary duties should affect fiduciary decision-making; and
  • the difference between fiduciary and nonfiduciary duties, and why that difference is important. 

Gerrie and Kerpen add that fiduciaries should: 

  • be familiar with their charter; 
  • understand what plans fall under their jurisdiction; 
  • know who their plans’ service providers are; and 
  • know where to access plan documents.

Taking these steps, Gerrie and Kerpen say, “can provide significant protections for ERISA plan participants, plan sponsors, and the ERISA fiduciaries themselves.”