1. Fiduciary University – Part 1
Setting The Stage
Presented By Adam C. Pozek, QPA, QPFC, ERPA
Vice President, Consulting Services
May 18, 2010

2. Why Are We Here?

3. This Date In History – May 18
 History
 1804 – The French Senate proclaimed Napoleon
Bonaparte emperor.
 1860 – Abraham Lincoln received the Republic Presidential
nomination.
 1896 – The Supreme Court upheld “separate but equal” in
it’s Plessy v. Ferguson opinion.
 1980 – After lying dormant for 93 years, Mt. St. Helens
erupted.

4. Why Are We Here?
“The time has come to move the focus of pension plan
governance out of the human resources department and
beyond compliance with tax laws. The executive suite needs to
focus on pension plan governance itself, especially the
responsibility and liability of pension plan fiduciaries.
“Pension plan governance has long been a creature of the
human resources department and tax accountants. However, its
connection to the executive suite became starkly clear after the
collapse of Enron, a financial meltdown that devastated the
retirement savings of thousands of employees.”
--Elaine Chao, Former U.S. Secretary of Labor

5. EBSA Enforcement
 Statistics for FYE September 2009
 Total monetary results of $1.36 billion
 Closed 3,669 civil investigations
 204 referred for litigation
 Closed 287 criminal investigations
 115 indictments
 Received 365,457 complaints
 $124.5 million in benefit recoveries
 970 investigations opened
Source: www.dol.gov/ebsa/newsroom/fsFYagencyresults.html

6. ERISA Litigation
Percentage of Cases By Type
0%
Source: ERISA Litigation Study (www.pensionlitigationdata.com)
Standard of Review
25%
Remedies
50%
Prudent Man Standard
75%
Loyalty
Interference with Benefits
Exclusive Purpose
Contributions
Breach of Fiduciary Duty
Adherence to Plan
Documents
100%

7. Disposition In District Court
1st
66%
2nd
34%
70%
3rd
30%
82%
4th
18%
70%
5th
30%
77%
6th
23%
65%
7th
35%
68%
8th
32%
56%
44%
9th
74%
26%
10th
74%
26%
11th
80%
0%
20%
20%
40%
Plaintiff
60%
Defendant
Source: ERISA Litigation Study (www.pensionlitigationdata.com)
80%
100%

8. Disposition In Appeals Court
1st
43%
2nd
57%
54%
3rd
46%
44%
56%
4th
48%
52%
5th
47%
53%
6th
39%
61%
7th
40%
60%
8th
45%
55%
9th
63%
10th
37%
54%
11th
46%
86%
0%
20%
14%
40%
Plaintiff
60%
Defendant
Source: ERISA Litigation Study (www.pensionlitigationdata.com)
80%
100%

9. Fiduciary Defined

10. Fiduciary Defined
 According to Black’s Law Dictionary, a fiduciary is…
 A person holding the character of a trustee…in respect to
the trust and confidence involved in it and the scrupulous
good faith and candor which it requires;
 A person having duties involving good faith, trust, special
confidence and candor towards another;
 A person or institution who manages money or property for
another and who must exercise a standard of
care…imposed by law or contract.

11. Fiduciary Defined
 According to ERISA §3(21)A, a fiduciary is anyone
who…
 Exercises any discretionary authority or control over the
management of a plan, or over the management or
disposition of plan assets;
 Renders investment advice for a fee or other
compensation, direct or indirect, over the disposition of
plan assets, or has any authority or responsibility to do so;
or
 Has any discretionary authority or discretionary
responsibility in the administration of such plan.

12. Fiduciary Standard of Care
 According to ERISA §404(a), fiduciaries must act…
 solely in the interest of the participants and beneficiaries
and for the exclusive purpose of providing benefits to
participants and their beneficiaries; and defraying the
reasonable expenses of administering the plan…
 …with the care, skill, prudence and diligence…that a
prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an
enterprise of a like character
and with like aims…

13. Fiduciary Status & The
Cast of Plan Characters

14. This Date In History – May 18
 Sports & Entertainment
 1957 – After 4 Kentucky Derby wins, Jockey Eddie Arcaro
won the Preakness Stakes.
 1968 – Tiny Tim’s Tiptoe Through The Tulips was released.
 1992 – The final episode of Murphy Brown aired prompting
public criticism from Vice President Dan Quayle.
 2004 – Randy Johnson became the oldest pitcher to throw
a perfect game.

15. Co-Fiduciary Liability
 Fiduciary is liable for breach of another fiduciary in
the following circumstances:
 Participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other fiduciary,
knowing such act or omission is a breach;
 Enables another fiduciary to commit a breach by failing to
comply with his/her duties; or
 Has knowledge of breach by such other fiduciary without
making reasonable efforts to remedy the breach.
Source: ERISA §405(a)

16. Ministerial Functions
 Non-fiduciary functions
 Application of rules determining eligibility
 Calculation of services and compensation credits
 Preparation of employee communications material
 Maintenance of participant records
 Preparation of reports
 Calculation of benefits
 Advising participants of rights and options under plan
 Collection/allocation of contributions
 Processing of claims
 Making recommendations to others for decisions with
respect to plan administration
Source: DOL Interpretive Bulletin 75-8, D-2

17. Plan Management Functions
 Selection, monitoring, evaluation and retention of…
 Plan trustee
 Service providers carrying out ministerial functions
 Investment manager
 Document provider
 Investment options/menu
 Investment advisor
 Fees
Source: DOL Interpretive Bulletin 75-8, D-4

18. Trustees – Yes
 Named fiduciary
 Hold “exclusive authority and discretion to manage
and control the assets of the plan”
 ERISA §403(a)
 Title is not always determinative
 Donovan v. Mercer, 747 F.2d 304 (5th Cir. 1984)
 Individual did not hold title but acted in trustee capacity

19. Directed Trustees –
Sort Of, But Not Really
 Limited responsibility to act on directions made in
accordance with the terms of the plan and not
contrary to ERISA
 No obligation to “second-guess” or determine the
prudence of every transaction
 No duty to question market transactions based on
public information
 Duty to raise questions based on non-public
information
Source: DOL Field Assistance Bulletin 2004-3

20. Plan Administrators
 Named fiduciary and party designated to be
responsible for the operation and administration of
the plan
 ERISA §3(16)(A)(i)
 Internal Revenue Code §414(g)(1)
 See Basic Plan Document Section 7.02

21. Directors & Officers
 Yes
 Officer decision not to deposit was exercising control over plan
assets
 LoPresti v. Terwilliger, 126 F.3d 34 (2nd Cir. 1997)
 No
 Shield from liability when acting solely on behalf of corporation
 Confer v. Custom Engineering Co., 952 F.2d 34 (3rd Cir. 1991)
 Maybe
 Considers “the extent of responsibility and control exercised by
the individual with respect to the [p]lan”
 Tittle v. Enron, 284 F.Supp.2d 511 (31 EBC 2281) (S.D.Tex. 2003)

22. Other Employer Representatives
 Payroll, HR and/or Benefits staff
 Facts and circumstances determination
 Duty to disclose
 Employees
 Usually not fiduciaries
 Consider impact of adding employees to plan committee

23. Third Party Administrators –
Usually, No
 Employer failed to timely remit 401(k) contributions
 TPA set forth conditions necessary to continue
engagement
 Remit outstanding deferrals within X days
 TPA resigned when conditions not satisfied
 Participants sued TPA alleging fiduciary breach
 TPA exercised discretion over engagement, not the
plan
Source: CSA 401(k) Plan v Pension Professionals, Inc., 1999 US App Lexis 30404 (9th Cir 1999)

24. Third Party Administrators –
Sometimes, Yes
 Insolvent sponsor of self-insured health fund
 Participants left with unpaid medical bills
 TPA had “ASO” contract
 TPA deducted fee from plan prior to disbursing
remaining funds
 Sufficient to establish fiduciary status
Source: Briscoe v. Fine, 2006 U.S. App. LEXIS 9208 (6th Cir. 2006)

25. Accountants – Usually, No
 Alleged embezzlement by administrator via
excessive and fraudulent fees
 Price Waterhouse engaged to audit plan and did
not question fees
 Fund alleged PW was fiduciary
Source: Painters of Philadelphia District Council No. 21 Welfare Fund v Price Waterhouse, 879 F 2d 1146 (3rd
Cir 1989)

26. Accountants – Sometimes, Yes
 Deposited contributions for client plan into
operating account and forwarded to plan
 Invested contributions and wrote plan checks at
direction of investment advisor
 No authorization from plan sponsor
Source: David P. Coldesina, D.D.S., P.C., Employee Profit Sharing Plan and Trust v, Estate of Greg P. Simper, 34
EBC 2633 (10th Cir. May 19, 2005)

27. Brokers
 Generally cannot be plan fiduciaries due to
method of compensation
 Variable compensation based on investments
selected
 Broker, as fiduciary, controls investment selection
 Inherent conflict-of-interest

28. Investment Advisors –
Usually, Yes
 Providing investment advice for a fee
 ERISA §3(21)A
 Individual financial consultant advising on plan
assets
 DOL Advisory Opinion 2005-23A

29. Investment Advisors –
Sometimes, No
 Promo materials indicated three levels of service
from reporting to advice
 Consultant engaged to prepare quarterly
investment performance reports
 Contract excluded analysis of private placement
investments
 Private placement investments lost more than $70
million
 Plan sued advisor for fiduciary breach
Source: Stahly v. Salomon Smith Barney, Inc., 9th Cir., No.06-35041, March 18, 2009 (unpublished opinion)

30. Actuaries
 Funding shortfall resulting from failure to consider
increases in early retirement benefits
 No liability under ERISA for non-fiduciary provision of
services
Source: Mertens v. Hewitt Associates, 508 U.S. 248 (113 S.Ct. 2063) (1993)

31. Attorneys
 Negligence in rendering legal advice
 Made non-binding investment recommendations
to trustees
 Court ruled attorney did not become fiduciary
Source: Custer v. Sweeney, 89 F.3d 1156 (4th Cir. 1996)

32. Overview of Fiduciary Duties

33. This Date In History – May 18
 Birthdays
 1872 – Bertrand Russell
 1897 – Frank Capra
 1912 – Perry Como
 1946 – Reggie Jackson
 1970 – Tina Fey
 1975 – Jack Johnson

34. The Prudent Process
 ERISA measures the process, not necessarily the
result
 Claim of fiduciary breach
 Allegations included failing to monitor providers and
paying excessive fees
 Court granted motion to dismiss
 Undisputed facts showed committee followed a reasoned
process to select and monitor providers
Source: George v. Kraft Foods Global, Inc. (S.D. Ill. Jan 27, 2010)

35. Fiduciary Duties & Best Practices
 Operational practices
 Identify all plan fiduciaries
 Establish written procedures
 Document decisions
 Deposit contributions timely
 Collect amounts owed to the plan
 Follow the terms of the plan
 Conduct regular self-audits
 Satisfy testing requirements

36. Fiduciary Duties & Best Practices
 Investment practices
 Prepare investment policy statement
 Offer diversified investments
 Monitor investments
 Document decisions

37. Fiduciary Duties & Best Practices
 Participant practices
 Satisfy all disclosure requirements
 Provide supplemental communication
 Consider investment advice
 Avoid misrepresentation

38. This Date In History – May 18
 Number 1 Hits
 1946 – All Through The Day by Perry Como
 1954 – Wanted by Perry Como
 1962 – Soldier Boy by The Shirelles
 1970 – American Woman by The Guess Who
 1978 – It’s All Wrong But It’s All Right by Dolly Parton
 1986 – Why Can’t This Be Love by Van Halen

39. Questions
Adam C. Pozek, QPA, QPFC, ERPA
Vice President, Consulting Services
781.914.1296
www.linkedin.com/in/adampozek
Adam.Pozek@SentinelGroup.com
twitter.com/PozekOnPension
blog.SentinelGroup.com
www.PozekOnPension.com
Adam is the vice president of consulting services for Sentinel Benefits & Financial Group in
Reading, Massachusetts. He specializes in working with business owners, executives and their
other professional advisors on plan design and compliance issues related to qualified
plans. Adam assists companies in assessing benefit programs as part of business
transactions, and he works with clients to address plan errors under the IRS and Department
of Labor correction programs.
Adam holds the professional credentials of Qualified 401(k) Administrator (QKA), Qualified
Pension Administrator (QPA) and Qualified Plan Financial Consultant (QPFC) from ASPPA as
well as Registered Health Underwriter (RHU) and Registered Employee Benefits Consultant
(REBC) from the American College. He is also an Enrolled Retirement Plan Agent (ERPA).