Employee Benefits Litigation: DOLs New Proposed Rules Expand Definition of Who Can Get Sued as a Fiduciary under ERISA

December 14, 2010, 9:27 AM

Over the course of the last few years, there has been an explosion of litigation under the Employee Retirement Income Security Act of 1974 (ERISA). Any employer offering employee retirement plans needs to keep a careful eye on the ever growing reach of the plaintiffs bar in this area. A major part of the growth in ERISA litigation has come in the form of class actions against plan fiduciaries for breaches of their duties under ERISA.

Defined contribution plans, i.e. 401(k) plans, unlike defined benefit plans, shift the risk of investment loss from the employer to the plan participants. While fiduciaries cannot guarantee investment performance, under ERISA they have a duty to act prudently, and their decisions regarding investment strategy face increasing scrutiny in a unstable economy; hence, the increase in litigation.

With that in mind, employers should be aware that in October, the Department of Labor (DOL) issued new proposed rules that expand the definition of who will be considered a fiduciary under ERISA.

Without going into detail inappropriate for short blog post, employers should note some of the more significant changes to the definition of what constitutes an ERISA fiduciary for purposes of providing investment advice. Under the proposed rule, the scope is expanded to include those providing advice on appraisals, basic investment valuation, fairness opinions, and the management of securities or other property, and will include those providing advice on either a one-time or regular basis.

The DOL is accepting comments on the proposed regulations until Jan. 20, 2011, and the proposed rules would take effect 180 days after publication of the final regulation.

Employers concerned about how the new proposed rules will impact their business, or how the expanded fiduciary definition will increase their exposure to ERISA-based suits, should contact counsel as soon as possible. --Michael B. Steele