North Carolina Law Review

University of North Carolina School of Law

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Are ERISA Fiduciaries Simply Common Law Trustees?

September 20, 2018

96 N.C. L. Rev. Addendum 20

 

Today, “[a] 401(k) is expected by employees in mid-to-large sized firms, but it can be fraught with peril for plan sponsors given the fiduciary responsibility and recent spate of lawsuits.” Imagine a private company voluntarily offers employees participation in an employee benefit plan to remain competitive in attracting high-level employees. One method the company uses to fund this plan is to invest in the company’s own stock. The company’s stock generally performs well and trends upward for years. After a series of unfortunate events, however, the company decides that, in order for the company to continue improving, the CEO must be fired. Once the news of the CEO’s departure from the company is released, the stock drops significantly. Correspondingly, the value of the employee benefit plan drops considerably. Now, the company may be on the hook for a breach of fiduciary duty under ERISA. Whether the company actually breached a fiduciary duty would depend on a number of factors, but ultimately, the determination of liability would likely focus on whether the employer-fiduciaries acted in the best interests of the employee-beneficiaries in administering the plan.

 

The Employee Retirement Income Security Act (“ERISA”) was enacted in 1974 to protect the beneficiaries of certain voluntarily established employee “pension and health plans in private industry” and is the body of law governing disputes similar to the one introduced above. Prior to ERISA’s enactment, the common law of trusts was inconsistently applied to employee benefit plans, creating a lot of uncertainty related to both monitoring and administering the plans, as well as effectively resolving potential disputes. In response to concerns regarding inadequate protection for employee beneficiaries—based on lack of information and lack of uniformity in the law across jurisdictions—Congress essentially codified certain principles of trust law in an attempt to provide even greater protections for plan beneficiaries and to produce a more uniform body of law in this context. Thus, ERISA was created.

 

Overall, Congress seemed most concerned with importing trust law’s principles of fiduciary conduct to all ERISA-governed plans. Essentially, Congress wanted to create a federal standard clarifying what it meant to be the fiduciary of an ERISA plan. Unfortunately, Congress provided little to no guidance as to exactly which trust law principles are included within ERISA or just how far its protections extend.

 

Now, courts are left to grapple with the question of whether certain procedural functions from the common law of trusts are applicable in ERISA litigation. Significant among these procedural functions is that the burden of proof shifts to the defendant-fiduciary to disprove loss causation once a plaintiff-beneficiary has proven a breach of an existing fiduciary duty.

 

Currently, there is a split among the circuits as to which party bears the burden of proving loss causation in ERISA litigation after the plaintiff proves a breach of fiduciary duty and resulting loss.  Most recently, the Tenth Circuit ruled in Pioneer Centres Holding Co. Employee Stock Ownership Plan & Trust v. Alerus Financial Co., N.A. that the ordinary rule that a plaintiff bears the burden of proving all elements of a claim, as opposed to the common law of trust’s burden-shifting framework, applies to ERISA litigation.

 

This Recent Development argues that it is time for the Supreme Court to settle the split and rule that, in the absence of clear congressional intent to the contrary, the plaintiff does in fact bear the burden of proving each element of the claim, including loss causation.

 

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