Fiduciary Liability and Getting Hit By a Bus

When I first started in the business in 1998, I was working for a small law firm that was affiliated with a third party administration (TPA) firm that eventually became CBIZ Retirement Services, Inc. of Syosset, New York. One of the things I remember is that the paralegal I worked and several of the administrators she knew well always took meticulous notes and kept their plan files in order because as they said that everything would be in order if they got hit by a bus. I don’t think anyone thought that they would get hit by a bus, but they wanted everything in order to minimize the disruption if something terrible happened to them, that someone could cover for them quickly.

As far as getting hit by a bus, you can minimize the risk by being careful and looking both ways when you cross the street. You can do your best to minimize the risk of getting hit by a bus, but you can never truly eliminate that risk. The same thing goes for fiduciary liability for plan sponsors and fiduciaries, plan sponsors and fiduciaries can employ best practices to minimize liability, but they never fully eliminate it.

Even those plan fiduciaries who do everything wrong aren’t guaranteed to be sued, just like someone jaywalking isn’t guaranteed to get hit by a bus. Recklessness increase the likelihood of disaster, there is no guarantee. The same thing goes for those who take every precaution; they still may get hit by a bus. When it comes to fiduciary liability, it’s not all ball bearings these days, it’s about minimizing liability.

I have written quite a bit about ERISA §3(38) fiduciaries and multiple employer plans (MEPs) and how these articles can help nearly eliminate fiduciary liability by delegating the fiduciary to a §3(38) or a MEP sponsor.  While I still believe that the appointment of a §3(38) fiduciary or joining a MEP is a fiduciary function (other ERISA attorney disagree and say it’s a settler function), the remaining fiduciary liability is so minimal because the §3(38) fiduciary and the MEP sponsor assume the bulk of fiduciary liability. While some critics of using a §3(38) fiduciary or a MEP point out that the plan sponsor still has some liability, I believe it’s so minimal because the folks that are§3(38) fiduciaries and MEP sponsors tend to be very dedicated to carrying out the fiduciary function in a prudent manner. Plan sponsors could also minimize liability on their own by remaining as full fiduciaries by selecting a plan advisor, a third party administration firm, and an ERISA attorney to mitigate the risk.

A plan sponsor covering all their bases either on their own or the use of someone who assumes the fiduciary role still poses a small risk, same as getting hit by lightning or being hit by a bus.