When it Hits the Fan: Fiduciary Liability Claims Trends

Transcription

1 When it Hits the Fan: Fiduciary Liability Claims Trends Timothy Bowen Mesirow Insurance Services 1

2 Common Misconceptions Governmental plan trustees often have two dangerous misconceptions: That ERISA fiduciary standards do not apply to them That they are protected by sovereign immunity The reality: Governmental trustees are held to high fiduciary standards similar to the federal ERISA duties State law contains significant limits on indemnification protections for governmental fiduciaries 2

3 Gaps in Protection Limited Liability Most states provide some form of protection to government plan fiduciaries, either through the statute governing the retirement system or generally through the state s sovereign immunity law. But most state statutes have gaps in fiduciary liability protection. 3

4 Fiduciary Liability Protect the board and the fund from liability due to the alleged acts or omissions of the trustees Covers the pension fund, and past, present and future trustees and employees. Claims include: Breach of Fiduciary duties, violation of the responsibilities, obligations or duties imposed by state or municipal pension codes Any error or omission in the performance of counseling participants, providing interpretations, handling records or effecting enrollment Written demand for monetary and injunctive relief Criminal or civil proceedings commenced by service of complaint, return of an indictment and/or agency or regulatory proceeding Defense costs / indemnity payments 4

5 Risk Management Recommended ways to help prevent costly and length litigation against your fund: Broad Fiduciary Liability coverage Broker who understands the risks Fair and knowledgeable fund counsel Document due diligence Review service providers frequently 5

6 Recent Claims Paid 1. Imprudent Investments: Trustees of a $9.5B employee retirement plan were alleged to have conducted illegal and imprudent investments involving hundreds of millions of dollars. The lawsuit raised questions concerning low return on investments and excessive management fees. 2. Failure to Monitor: Participants of a health plan sued the plan s board of trustees alleging that the trustees paid excessive fees in administering the plan. Participants alleged that trustees breached their duty to monitor the fees of the plan administrator. 3. Conflict of Interest: Trustees of a $1.3B plan were alleged to have breached their fiduciary duty and accused of conflict of interest when plan assets were invested in products owned by an investment manager. The fees paid to the investment manager were also called into question 4. Challenge to Supplemental Retirement Plan: Participants in deferred retirement option plan sued when plan trustees adjusted to a lower guaranteed interest rate to prevent further losses. Participants alleged that they have contractual right to original guaranteed interest rate. 5. Improper Expenses/Ethics Violations: State Board of Ethics conducted a confidential investigation concerning information it received suggesting that certain Trustees may have violated provisions of law within the Board of Ethics jurisdiction. Specifically, Board of Ethics investigated whether plan trustees violated certain state laws by taking extended stays at investment conferences for the Trustee and his/her family members, food and drink for the Trustee and his/her family members, and transportation for the Trustee and his/her family members, to which the Trustee was not duly entitled to receive for the performance of his/her job duties as a member of the Board of Trustees. 6

7 Benefits Claims A fund s beneficiaries file suit against the fund for a reduction in benefits that was enacted by the state legislature A fund participant sues the pension fund because he claims he is entitled to an increase in benefits that he did not receive A fund participant sues the pension fund for disability benefits The Employer failed to deduct the required employee contributions that were to be paid into the pension plan. As a result, the plan trustees were sued for breach of fiduciary dirty for failing to pursue these contributions from the plan participants Supplemental Distributions: City Attorney filed lawsuit against the board of trustees regarding the supplemental distributions provided to participants of the plan. City attorney alleged that plan trustees breached their fiduciary duty by providing a 13th check without having satisfied the requirement under state law, including sufficient annual return on plan investments Benefit Claim: Participant alleges that the plan officials failed to properly credit the service time of the participant, resulting in reduced pension benefit. 7

8 When a Claim Hits When to report? Communicate Counsel Broker Carrier 8

9 Important Risk Management Tip ASK QUESTIONS! 9