The issue of fiduciary status is often cumbersome because while a fiduciary can be directly named by a plan, someone can also be deemed to be a fiduciary by virtue of having discretionary authority, or even by exercising some discretionary authority through plan administration. Consider the case of Perez v. Geopharma, a case from the Middle District of Florida brought by the Department of Labor.
Before reading further, consider that this decision is only on a motion to dismiss; this is hardly a definitive decision relating to what it takes to become a fiduciary. However, the ruling from the court does seem to suggest that at least some argument can be made that company officers could be liable for fiduciary breaches unless they can demonstrate that they did not control plan assets. Therefore, it might be worthwhile for employers as plan sponsors actually formally separating plan assets to limit the signatory authority on those accounts to people actually intended to be plan fiduciaries. Here is why:
In bringing the case, the DOL is looking to hold the company and three corporate officers, including the CEO jointly and severally liable for alleged breaches of fiduciary duty. The nature of the breaches is not as important as the fact that the DOL is arguing that the officers of the company are co-fiduciaries and thus liable for each others actions under 29 U.S.C. § 1105. The CEO brought a motion to dismiss the complaint arguing that he was not named as a plan fiduciary and that his general signature authority over the companys bank accounts was not enough to trigger ERISAs fiduciary responsibilities because he did not really exercise discretionary authority. The DOL countered that because the officers were signatory to the companys bank accounts, they had a fiduciary duty to monitor the plans other fiduciaries, as well as the companys management and administration of the plan. Since there was not a bank account segregated for plan assets, signing authority on the company account was enough.
The court denied the motion to dismiss, finding that signature authority made him a plan fiduciary because ERISA provides, in part, that someone can become a fiduciary by exercising ANY authority or control over the management or disposition of plan assets, even without having discretion. At this stage (the motion to dismiss), the court declined to consider whether discretion was an ERISA fiduciary requirement at this stage, but suggest that at least one other court (the 11th circuit) for the proposition that actual discretionary authority was required to obtain fiduciary status. So for now, check signing authority was enough to state a claim.
Since this decision is only a motion to dismiss, this is hardly a definitive decision relating to what it takes to become a fiduciary. However, it does suggest that at least some argument can be made that company officers could be liable for fiduciary breaches unless they can demonstrate that they did not control plan assets. Therefore, it might be worthwhile for employers as plan sponsors actually formally separating plan assets to limit the signatory authority on those accounts to people actually intended to be plan fiduciaries.
So are separate accounts and separate signing authority required? Maybe and maybe not. But if the DOL used the single signatory theory as a basis to bring the case, companies that sponsor plans should consider the possibility that separate accounts might be worthwhile for litigation avoidance.
Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at firstname.lastname@example.org or (212) 878-7919.
The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.
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