I am working on some cases now that involve allegations of misuse of an expert by a fiduciary of a benefit plan. Consequently, I have been reading a lot of articles and cases relating to the fiduciary duty and expert advice. As a result, I can see where fiduciaries could have a real question about their duty to retain experts and the restrictions on relaying on expert advice.
Generally, the only real requirement for someone to act as a fiduciary of a benefit plan under ERISA is that they be a reasonably prudent person and that they act with diligence and due care. That is the essence of ERISA Section 404. However, Section 404 includes that the measurement of care is based on a reasonable person familiar with such matters. Thus, the law recognizes that someone could possibly have to look outside of their own knowledge in order to be acting reasonably. But it is not automatically required. Again, the standard is one of reasonable prudence, so a fiduciary is not required to substitute their own knowledge for that of another if the fiduciary has a certain skill.
What this means is that the process of selecting and relying on an expert requires a fiduciary to go deeper than simply selecting someone who claims to know more than the fiduciary. Assuming the fiduciary determines that a reasonably prudent person would seek outside advice, the fiduciary then has to determine from whom the advice should be sought. The due diligence of investigating and selecting someone who does in fact have an expertise defines whether a fiduciary can rely on the advice. Simply put, you cant rely on an expert if you have not first determined them to be an expert and that is only done through investigating their qualifications.
Assuming a fiduciary has diligently selected an expert, the next question is whether the fiduciary can rely on the advice given. In order to do that, the trustee has to reasonably understand the advice given. In other words, the fiduciary has to demonstrate that they understood what the expert has opined and why. How and why are the important questions why did you reach this conclusion and how did you get there? Fiduciaries have to show the understood the rationale, not just the recommended action.
This last part creates the quandary because sometimes it can be reasonable to reject expert advice. A fiduciary is not always required to replace their own knowledge and skill with that of an expert. A fiduciary should recognize that they have the duty to act and they will be judged on those actions, not the expert. So a fiduciary who does not agree with the rationale provided by the outside expert should not blindly agree to an action simply because the advice came from an expert. This is not to suggest that expert advice should be easily rejected or ignored. But expert advice does not replace the knowledge and skill of the reasonable fiduciary.
Having experts is not a bad thing. And relying on experts is generally good when it is a topic about which a fiduciary has no knowledge. But dont assume that using an expert will be an insulator from any claim for breach of duty. It only helps if it is truly an area where an expert is needed, they were properly selected and you understand their advice.
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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