Retirement plan fiduciaries need to know that some of their communications with attorneys are protected by attorney-client privilege. In fact, when attorney advice is given to a plan fiduciary for the benefit of the plan, it could be used in court. Read on to understand which communications are protected by attorney-client privilege.
Starting A Plan vs Running A Plan
While it’s a great idea for retirement plan sponsors to obtain advice from attorneys who specialize in ERISA, it’s essential to understand that the related communications “are not always protected by attorney-client privilege.” Plan Sponsor shares this guidance from Matt Young, a partner in and ERISA attorney at Pryor Cashman LLP:
There are two relevant functions in which a fiduciary can act: the settlor function and the fiduciary function. An exception to attorney-client privilege applies when a fiduciary acts as a fiduciary, but not when a fiduciary acts as a settlor.
A fiduciary acts as a settlor when taking actions such as starting or terminating a plan or when modifying features, such as adding a Roth source or changing matching contribution. Settlor functions relate to plan features that participants are not legally entitled to. These discussions are privileged because the attorney is representing the company’s interest.But when a fiduciary acts in a fiduciary capacity, once a plan is up and running, “that’s where the exception to attorney-client privilege comes up…”. Actions such as investment decisions and determining claims are for the benefit of the participants, and at those times, “the plan beneficiaries are the attorney’s clients,” technically speaking.
Given the complexities involved, retirement plan experts observe that it is especially easy for plan sponsors from small businesses to get confused and “think the lawyer is theirs,” but when “advice is provided to benefit the plan,” it is important to remember “the plan benefits the participants,” which effectively makes the plan the attorney’s client. David Rose, another partner at Pryor Cashman points out: If “advice is being rendered for the benefit of the participants,”…and a fiduciary disregards that advice, then it is important for the participants to be able to access those communications during litigation.
Because ERISA standards are challenging, it is vital for plan sponsors to access solid legal advice. Experts suggest that by being aware of “which hat they are wearing,” and “segregating” communication accordingly, plan sponsors can benefit from legal counsel: “For example, an email that contains fiduciary information, such as a participant claim, should avoid also mentioning settlor information, such as cutting matching contributions.”
Given the high and complex standards of ERISA– and the rise in litigation, being defense ready is a best practice for plan sponsors. Although fiduciary breach allegations are not an automatic indication of wrongdoing, plan sponsors and other fiduciaries named in lawsuits quickly learn that mounting a defense is expensive and burdensome, becoming only more so as cases drag on. Colonial Surety is here to help with affordable Fiduciary Liability Insurance. Armed with this coverage, for a few dollars a day, you’ll have coverage for defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
Defense is right here: Fiduciary+Cyber Insurance
Good To Know: Anyone and Everyone
Remember, the “listed plan fiduciary” is not the only individual who can be held responsible for errors, actual or alleged, related to a company sponsored retirement plan. Indeed, law experts underscore that anyone and everyone involved in the plan can be held personally accountable: “An entity is a fiduciary with respect to an ERISA plan to the extent that it has any discretionary authority or discretionary responsibility in the administration of the plan. Anyone who exercises discretionary control or authority over the plan’s management, administration, or assets is an ERISA fiduciary even if that person is not listed as a plan fiduciary….”
Don’t shoulder the risks alone: with Colonial Surety’s affordable coverage, in the event of claims of alleged or actual breaches of duty in connection with the employee retirement plan, fiduciaries have defense, plus cyber liability Insurance Colonial even locks in multi-year rates and offers installation payments. Get covered today:
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Excessive Fee Complaints With a New Twist
New trends in claims against retirement plans (and their fiduciaries) include allegations of imprudence related to investment fund choices. Even as excessive fee litigation claims brought in 2022 continue to clog up courts, new angles for ERISA lawsuits are being attempted.
Despite hopes that a heightened standard for excessive fee claims would result in plan sponsors winning more motions for the dismissal of ERISA lawsuits, the fact is: plan sponsors are losing even more motions to dismiss this year, than last. Perhaps more alarming, as defense experts point out, are the new tactics in play in support of claims:
Importantly, plan sponsors need to know that under the extensive and high standards of ERISA, the “listed plan fiduciary” is not the only individual who can be held responsible for errors, actual or alleged, related to a company sponsored retirement plan. Indeed, law experts provide this timely reminder that anyone and everyone involved in the plan can be held personally accountable: “An entity is a fiduciary with respect to an ERISA plan to the extent that it has any discretionary authority or discretionary responsibility in the administration of the plan. Anyone who exercises discretionary control or authority over the plan’s management, administration, or assets is an ERISA fiduciary even if that person is not listed as a plan fiduciary….”