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Procedures, Procedures, Procedures; Fiduciary Decision-Making Process Can Be Key Evidence At Trial

Employee Benefits Update J. Paul Jacobson, Robert D. Rothacker, David P. Olson, Amy A. Ciepluch, Sarah M. Linsley, Marla B. Anderson

Fiduciaries of retirement plans owe particular duties to plan participants. Among the duties of plan fiduciaries is the duty of prudence, meaning plan fiduciaries must act with the care, skill and diligence that a prudent person who is knowledgeable of employee benefit plans would use. The duty of prudence extends to the procedures that plan fiduciaries use. Documenting the analysis plan fiduciaries used in making a decision is not only good business practice, it is key evidence that can be used at trial and can, at times, carry more weight than the decision itself. In litigation, plan fiduciaries' decisions are not evaluated based on hindsight but on the information that was available to fiduciaries at the time the decision was made. Simply showing that plan fiduciaries considered all the necessary information and made a prudent decision in light of such information can be extremely helpful in mitigating or winning an ERISA action, even if, in hindsight, a different decision would have been better for the plan.

The First Circuit Court of Appeals recently decided an employer stock case in favor of the plan fiduciaries. In Bunch v. W.R. Grace & Co. Savings and Investment Plan, 555 F.3d 1, plan participants alleged that plan fiduciaries had breached their fiduciary duties by selling company stock held within the plan at a low price, shortly before the stock price increased. The court looked to the process the plan fiduciaries used and determined it was a "substantively sound, reasonable analysis of all relevant circumstances." For instance, to avoid any potential conflict of interest, the fiduciaries hired an independent fiduciary to decide whether to divest the plan of company stock. Perhaps most importantly, there was documentation of the process and the information on which the plan fiduciaries relied. Based on this evidence, the court found that the plan fiduciaries were not liable for any breaches of their fiduciary duties.

Given that courts will look to the procedures that plan fiduciaries followed in making their decisions, fiduciaries should be sure minutes are kept of their meetings. The minutes should provide sufficient detail to document the procedures that were followed. If necessary, supplement the minutes with additional documentation for key fiduciary decisions. Did you consider four other investment advisers before settling on one? Document the factors that went into that decision, and keep those records with your minutes.

This is the last in a series of updates that Quarles & Brady has provided on how plan fiduciaries can reduce their risk of an ERISA lawsuit. You can learn more about best practices for plan fiduciaries and how to minimize your risk of fiduciary liability at Quarles & Brady's "Fiduciary University," a seminar on how to minimize your risk of fiduciary liability, on May 19, 2009.

In the meantime, if you have any questions about minimizing your risk, you may contact, Paul Jacobson at 414-277-5631 /, Robert Rothacker at 414-277-5643 /, David Olson at 414-277-5671 /, Amy Ciepluch at 414-277-5585 /, Sarah Linsley at 312-715-5075 /, Kerri Hutchison at 414-277-5287 /, Marla Anderson at 414-277-5453 / or your Quarles & Brady attorney.