- Consider an Annual (Ph)iduciary Physical For Your Retirement Plan
- February 6, 2009 | Author: Thomas H. Bergh
- Law Firm: Varnum - Novi Office
2008 was a landmark year for retirement plan fiduciaries, with the U.S. Supreme Court deciding two cases with broad implications, Metropolitan Life v. Glenn and LaRue v. DeWolff, Broberg & Associates, Inc. These cases provide a "how not to do it" perspective that can assist a thoughtful fiduciary in developing systems to minimize the possibility of any claim for an alleged breach of relevant fiduciary duties.
While considering fiduciary issues, it is always advisable to focus on process. Fiduciary duties are largely procedural, and in the litigation context, it is as important to demonstrate that appropriate analysis was made about the decision as the actual outcome that resulted. Therefore, maintenance of a paper trail, including meeting minutes and other records of fiduciary activities, is essential.
Another often-overlooked aspect of fiduciary duties is the importance of following the terms of the appropriate governance documents, including the plan document, summary plan description, and plan administrative procedures. Maintenance and frequent reference to these basic items is critical not only for avoiding fiduciary breaches, but is also a key aspect of avoiding administrative sanctions and penalties imposed by the IRS or Department of Labor (DOL) on audit. The in-coming administration has made no secret of its intention to increase scrutiny of employer plan operations, and taking proactive measures increases the likelihood of surviving audit unscathed.
Within this framework, MetLife v. Glenn provided an agenda for employers and fiduciaries to limit exposure in processing benefit claims brought by plan participants. Although commentators are still debating the nuances of the case, its general teaching of the importance of maintaining the impartiality and integrity of benefit claims decision makers is clear. Any appearance of lack of due process or conflict of interest can taint the process and increase the likelihood that a federal court will substitute its judgement about participant benefit rights for that of the plan decision maker. Likewise, maintaining records to reflect the absence of conflicts of interest in the benefit claims process is important. In most circumstances, separating the claims function from those interested in or responsible for the economic interests of the plan sponsor is advisable. The watchword in the claims decision process needs to be fairness and accountability.
Once a "fair and balanced" claims process is established and monitored, LaRue v. Broberg demonstrates the advantages of drafting the governing documents in a way that channels as many potential disputes as possible into that claims process. The simple truth is that once a lawsuit is filed, the plan and plan sponsor have already lost, in the sense that litigation costs are almost certain to be significant. Providing for and maintaining a robust claims procedure not only help ensure that the right outcome will be reached, but it also minimizes the possibility of litigation, and in addition, can set ground rules for dispute resolution that can, within boundaries of reasonableness, provide the arbiter with clear and comprehensive standard with which to work. These steps can materially limit exposure, particularly in discouraging a potential plaintiff's attorney from taking the case.
The goal of every plan sponsor and fiduciary should be to stay our of any court, much less the Supreme Court, and the 2008 Supreme Court term provided significant guidance on how to accomplish that goal.