One of the reoccurring themes here at Benefitsblog is the need for ERISA fiduciaries to become educated and trained about their fiduciary duties and responsibilities under ERISA. A 2002 case from the Central District of California district court, Springate v. Weighmasters Murphy, Inc. Money Purchse Pension Plan, 217 F. Supp. 2d 1007, illustrates how some ERISA fiduciaries are “in a fog” about their status and duties. In fact, at a conference I attended, one litigator commented that some individuals do not even realize that they are ERISA fiduciaries until they are having their deposition taken. A similar situation occurred in this case as the opinion states: “Until the time of his deposition, [Defendant 3] did not understand that one of his obligations was to tell the trustee “how to invest Plan assets.””
The case involved a money purchase pension plan which had lost significant value in a short period of time. A plan administrative committee comprised of family members who also ran the business served as the “named fiduciaries” of the plan.
The court’s discussion of how the three individuals serving on the plan administration committee failed to fulfill their fiduciary duties under ERISA is a lesson in itself:
4. What the fiduciaries did not know about their duties and obligations as fiduciaries
[Defendant 1] does not know the meaning of the word “fiduciary.” [Defendant 1] did not understand the Plan when he read it. [Defendant 1] never read the entire Plan document. [Defendant 1] does not know the meaning of the word “trustee” and never made any inquiries as to what his role as a trustee was. [Defendant 1] does not know the meaning of the words “plan participant.” [Defendant 1] does not know the meaning of the words “plan beneficiary.” [Defendant 1] does not know the meaning of the expression “party in interest.” [Defendant 1] does not know the meaning of the expression “exclusive benefit rule.” [Defendant 1] does not know the meaning of the expression “plan year.” [Defendant 1] does not know the meaning of the expression “plan asset.” [Defendant 1] does not know the meaning of the expression “a prudent man.” [Defendant 1] does not know the meaning of the expression “a prudent fiduciary.” [Defendant 1] does not know the meaning of the expression “diversification of assets.” [Defendant 1] does not know the meaning of the acronym “ERISA.”
By the way, the portion of the opinion which I have quoted here is taken from the District Court case. The case was affirmed on appeal on August 22 of this year by the 9th Circuit. (No link available.)
Continue reading for more excerpts from the case . . .
[Defendant 2] does not know the meaning of the word “fiduciary.” [Defendant 2] does not know the meaning of the word “trustee.” [Defendant 2] does not know the meaning of the words “plan participant.” [Defendant 2] does not know the meaning of the words “plan beneficiary.” [Defendant 2] does not know the meaning of the expression “party in interest.” [Defendant 2] does not know the meaning of the expression “prohibited transaction.” [Defendant 2] does[*pg. 1018] not know the meaning of the expression “exclusive benefit rule.” [Defendant 2] does not know the meaning of the expression “plan year.” [Defendant 2] does not know the meaning of the expression “plan asset.” [Defendant 2] does not know the meaning of the expression “a prudent man” as applied to the obligations of a trustee. [Defendant 2] does not know the meaning of the expression “a prudent fiduciary” as applied to a trust of any type. [Defendant 2] does not know the meaning of the expression “diversification of assets.” [Defendant 2] is not familiar with the expression “ERISA.” [Defendant 2] has not taken any steps to educate himself as to the role of a fiduciary. [Defendant 2] does not know if he read the Plan. [Defendant 2] does not know the meaning of the expression “plan sponsor.” [Defendant 2] is the Secretary Treasurer of Weighmasters Murphy, Inc. [Defendant 2] does not know the source of funding for the Plan.[Defendant 3] defines “trustee” as “somebody who is responsible.” [Defendant 3] states that within the context of a pension plan, the “trustee” is only responsible for choosing someone to handle the responsibility and money. [Defendant 3] has been a “trustee” only once. [Defendant 3] was a “trustee” for his brother’s estate. [Defendant 3] defines “fiduciary” within the context of a pension plan as meaning that “you will be faithful in seeing that the assets are in good hands and administered well ….” [Defendant 3] cannot properly define the expression “plan participant.” [Defendant 3] has not read the Plan document. [Defendant 3] is not familiar with the expression “party in interest.” [Defendant 3] defines the expression “prohibited transaction” as “not filing the papers correctly.” [Defendant 3] is not familiar with the expression “exclusive benefit rule.” The named fiduciaries did not consult with a financial advisor concerning any aspect of the Plan assets. [Defendant 3] has taken no steps to ensure that he had a proper level of knowledge when attempting to act as a Named Fiduciary. [Defendant 3] does not have any understanding of the expression “prudent man” within the context of a pension plan. [Defendant 3] contends that as a Named Fiduciary he does not have any responsibility for the monitoring whomever he hired to insure they were diversifying the Plan’s assets. [Defendant 3] contends that as a Named Fiduciary he had no obligation to do anything with regard to the assets of the Plan. [Defendant 3] does not have an understanding of the expression “independent trustee.” [Defendant 3] is not familiar with the expression “named beneficiary.” [Defendant 3] is not familiar with, and has no understanding of, the expression “named fiduciary.” Until the time of his deposition, [Defendant 3] did not understand that one of his obligations was to tell the trustee “how to invest Plan assets.”
5. What the Defendant fiduciaries did not know concerning the composition and value of the Plan’s assets
[Defendant 1] was never aware that the Plan owned stock in UNUM Corporation. [Defendant 1] never knew UNUM’s stock price. The value of the Plan assets declined after Decedent’s death. [Defendant 1] took no steps to interrupt the decline in value of the Plan’s assets. [Defendant 1] did nothing to determine the value of [Decedent]’s interest in the Plan at the time of [Decedent]’s death. [Decedent]’s interest in the Plan dropped 40% in the 14 months after her death. [Defendant 1] does not know if any participant, other than [Decedent], sustained a 40% decline in the same period of time. [Defendant 1] does not know why [Decedent]’s interest in the Plan dropped from over $1.5 million to $915,000.00 in the 14 months following her death. [Defendant 1] never found out why [Decedent]’s interest in the Plan dropped from over $1.5 million to $915,000.00 in the 14 months following her death. [Defendant 1] does not know the value of the Plan’s assets for any year in which he was a Named Fiduciary. [Defendant 1] does not know the composition of the assets of the Plan for any year in which he was a named Fiduciary. Despite the fact that he had no experience in investing in the stock market, [Defendant 1] never consulted with a financial advisor to determine if any asset owned by the Plan was an appropriate asset to be owned by a pension plan. [Defendant 1] never consulted with a financial advisor about the Plan’s assets at all. [Defendant 1] did not know what assets the Plan held as of May 31, 1999, the end of the Plan year in which Decedent died. [Defendant 1] did not know the value of any individual asset held by the Plan on May 31, 1999, the end of the Plan year in which Decedent died. [Defendant 1] never took any steps to inform himself as to what assets the Plan held as of May 31, 1999. [Defendant 1] never took any steps to inform himself as to what assets the Plan held at any time. . . . [Defendant 1] was never aware that the Plan owned 22,852 shares of UNUM stock. [Defendant 1] does not know what UNUM does. [Defendant 1] did not know that UNUM’s stock price had dropped from $55.5625 per share on May 31, 1998, to $13.375 per share on February 29, 2000. [Defendant 1] did not know that UNUM’s stock price had been reduced by 80% between May 31, 19998 and February 29, 2000. [Defendant 1] does not know what an “asset” is.[Defendant 2] does not know the composition of the Plan’s assets. [Defendant 2] does not know what types of assets a Plan may hold under ERISA. [Defendant 2] does not know what types of assets a Plan may not hold under ERISA. [Defendant 2] never took any steps to determine what the Plan’s money was invested in, whether it was stocks, bonds, cash or anything else. [Defendant 2] never consulted with a financial advisor concerning what types of assets and investments were appropriate for a plan to hold. Since becoming a Named Fiduciary in May 1999, [Defendant 2] has done nothing to fulfill his obligations he may have had except attend one or two meetings of the Committee. [Defendant 2] has never known what the assets of the Plan consisted of. [Defendant 2] does not know if the Plan ever owned UNUM stock. [Defendant 2] never reviewed the performance of UNUM stock to determine if it was an appropriate investment for the Plan. [Defendant 2] never knew the Plan owned 22,852 shares of UNUM stock. [Defendant 2] does not know what “MFB NORTHRN INSTL FDS Diversified Growth Portfolio” is.
[Defendant 3] is not aware of any Named Fiduciary consulting with a financial advisor. [Defendant 3] has taken no steps to ensure that he fulfills his fiduciary duties. [Defendant 3] never understood until his deposition that it was his obligation to tell the trustee how to invest Plan assets. [Defendant 3] does not know who was responsible for choosing the Plan’s assets since May of 1999. [Defendant 3] never chose any asset to be owned by the Plan. [Defendant 3] does not know the value of the assets held by the Plan at the end of the 1999 Plan year. [Defendant 3] does not know the value of the assets held by the Plan at the end of the 2000 Plan year. [Defendant 3] does not know the composition of the Plan assets at the 1999 Plan year end. [Defendant 3] does not the composition of the Plan’s assets in the 2000 Plan year end. [Defendant 3] does not know if the assets owned by the Plan were appropriate investments. [Defendant 3] never investigated UNUM stock at all. [Defendant 3] never concerned himself with what assets were in the Plan. As a Named Fiduciary, [Defendant 3] did nothing to minimize the losses suffered by the Plan and its Participants. [Defendant 3] had previously retired from Weighmasters Murphy, Inc. and received his interest in the Plan in a lump sum distribution. [Defendant 3] never reviewed the investments made by the Plan. [Defendant 3] never reviewed the investment returns or losses made by the Plan’s assets. [Defendant 3] admits he is not competent to choose stocks for the Plan. [Defendant 3] never consulted with anyone concerning how to properly run or administer the Plan. [Defendant 3] never paid attention to whether the Plan’s investments were going up or down in value. [Defendant 3] did nothing to determine if UNUM stock was an appropriate investment of Plan assets. The Plan’s investment in UNUM stock constituted of two thirds of the Plan’s assets. [Defendant 3] did nothing to determine if it was appropriate to keep two thirds of the Plan’s assets in UNUM stock. [Defendant 3] does not know what MFB NORTHRN INSTL Diversified Growth Portfolio is. [Defendant 3] did not know the Plan owned over 30,000 shares of MFB NORTHRN INSTL Diversified Growth Portfolio. [Defendant 3] took no steps as a Named Fiduciary to determine if the Diversified Growth Portfolio was a wise investment of Plan Assets. [Defendant 3] never looked at the Plan’s assets in 1999 or 2000 to determine why their value was dropping. [Defendant 3] was not aware that UNUM stock dropped from $55.00 per share to $13.00 per share between May 31, 1999 and February 29, 2000. [Defendant 3] concedes that it was not prudent to “ride it [the UNUM stock] down” 75%. [Defendant 3] never thought that in order to protect the Plan participants and beneficiaries, the Named Fiduciaries should sell the UNUM stock and invest in something else.