Press Release
Plan Sponsors Told of Changing "Fiduciary" Standards
QUINCY, MA, December 4, 2002 –- Regulators who have been keenly focused on the fiduciary responsibilities of benefit plan sponsors since financial calamities rocked several large corporations are suggesting standards of disclosure and fiduciary duties that far exceed previous requirements, plan sponsors were told during a recent Webcast hosted by CitiStreet.
"There is a clear signal of change," said Phil Lussier, president of CitiStreet’s Institutional Division.
He said the regulatory climate on benefit plans has been a critical focus amid the stock market decline and the investigation of several large corporations for accounting frauds. "There is a clear tone coming out of Washington, certainly out of the Department of Labor and Congress as well, that executives may have personal liability for the delivery of these plans as a fiduciary."
Gary Jenkins, general counsel for CitiStreet, discussed the general fiduciary duties of plan sponsors and noted the increased vulnerability of plan sponsors began six years ago with a Supreme Court ruling (Varity v. Howe) that said employers may be held liable as a fiduciary when they communicate information about benefit plans to their employees.
Steve Saxon, a partner in the Groom Law Group of Washington, D.C., the largest employee benefits specialty firm in the country, told the Webcast audience that a clear indication of the altered regulatory climate can be found in the amicus brief filed by the DOL opposing Enron’s motion to dismiss the case brought by its retirement plan participants.
In one key area of the brief, the Labor Department referred to a "duty to disclose," that is, that plan sponsors must ensure that appointed fiduciaries have the material investment information required for them to carry out their responsibilities.
"It requires plan sponsors to anticipate the information needs of participants and guess what is material and what may not be material at any point in time," he said. He added that expanded interpretations of the law are leading to a signal that a fiduciary "will be held responsible for what you knew and what you should have known, even for matters over which a fiduciary has no control. My view is that this pushes the envelope too far."
Saxon also said that beyond the Labor Department, case law concerning the holding of company stock in employee stock ownership plans (ESOPs) is susceptible to new interpretations regarding the "presumption of prudence" found in Moench v. Robertson. That ruling will be re-litigated in the Enron case, he said.
"Remember this, that prudence is procedural," he told the plan sponsors listening to the Webcast, noting the great flux today concerning the legal scope of fiduciary responsibilities. "For now, you have to make sure you are doing all the right things."
He said plan sponsors should not expect a magic moment when all relevant benefits law is spelled out fully and clearly, but should begin now to review retirement plan investment practices, including assessing amounts of company stock in a plan, and how much of it is company matching stock and how much participants purchased of their own accord; getting fiduciary insurance coverage; and holding regular meetings and discussing all investments in a plan, including company stock, "which sometimes gets ignored, and that will show up in the minutes."
He said some of his firm’s clients have called in outside experts to do compliance reviews or at least reviews of the process under which they make decisions on investments, particularly company stock.
Pointing to new penalties, he noted the Sarbanes-Oxley Act of 2002, the sweeping reform legislation intended to protect investors by improving the accuracy and reliability of corporate disclosures, spells out that companies failing to adhere to the proper notice periods will be fined $100 per day per plan participant. (As an indication of the ramifications of such a fine, there are more than 3,000 U.S. firms with more than 2,500 employees, according to the Census Bureau.)
Saxon said he feels certain the Enron case will eventually find its way to the Supreme Court, and whatever the extent of its ruling, the fiduciary role of the plan sponsor is being redefined.
About CitiStreet
CitiStreet, one of the largest global benefits delivery firms in the United States, is headquartered in Quincy, Mass. It has 3,000 employees and offices in East Brunswick, N.J., Jacksonville, Fla., Lewiston, Maine, and Boston, and 35 field offices around the nation.
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