The Employee Retirement Income Security Act of 1974 (28 U.S.C. Sec. 1001 et seq.) is more popularly known as ERISA.

This piece of legislation removed control over pension and other employee benefit plans from state law and transferred it to a uniformed system of federal law. ERISA subjects those responsible for the administration to a strict set of fiduciary responsibilities.

Common law generally limited the reach of the term "fiduciary" and the legal responsibilities to the persons named as trustees. In contrast to the common law, ERISA rejected a formalistic definition of the term "fiduciary," deciding instead on a functional one. See Galgay v. Gangloff, 677 F.Supp. 295, 302 (N.D. Pa. 1987). As an example, a person who "exercises any discretionary authority or discretionary control respecting management or such plan or exercises any authority or control respecting management or disposition of its assets" is a fiduciary. 28 U.S.C. Sec. 1002(21)(a).

The responsibilities of a fiduciary include the discharge of his duties "solely in the interest of the participants and beneficiaries." 28 U.S.C. Sec. 1104(a)(1). The standard of care required is that of "a prudent man acting in a light capacity and familiar with such matters." 28 U.S.C. Sec. 1104(a)(1)(B). The definition includes the plan administrator, the trustees and others who are appointed to controlling positions within the plan and are referred to in the statute as "named fiduciaries." 29 U.S.C. Sec. 1102(a)(1). Fiduciary responsibilities have also been extended to persons not appointed to positions within the plan. Fiduciary responsibilities in these circumstances may arise from a single set of events rather than an extended relationship. Persons held to be fiduciaries are often referred to as "de facto" fiduciaries and they are also subject to ERISA’s stringent fiduciary responsibilities.

In International Union, UMWA v. First Big Mountain Coal Co., 16 E.B.C. 1734 (S.D.W. Va. 1993), two individual defendants who are officers of a bank of a corporate defendant advised employees that their health coverage remained in effect when they knew such coverages had been terminated. The Court found that the officers were fiduciaries and that the misrepresentations they had made constituted breaches of their fiduciary duties. The Court did not indicate that the particular fiduciary duty that was breached, but indicated that the misrepresentations of coverage appeared to have violated the fiduciary duty to act "solely in the interest of the participants and the beneficiaries." 29 U.S.C. Sec. 1104(a)(1). They were found to be personally liable pursuant to 29 U.S.C. Sec. 1109(a).

The fiduciary is responsible for losses caused by the acts or omissions of his co-fiduciaries if by his failure to comply with his fiduciary duties, he enabled such losses to occur or if he knew of the breach, he failed to make reasonable efforts to correct it. 29 U.S.C. Sec. 1105(a). Fiduciary responsibility under ERISA is no doubt a serious matter.

In Schaefer v, Arkansas Medical Society, 853 F.2d 1487 (8th Cir. 1988), the Court set forth a number of rules which are required with regard to the issue of fraud. In particular, the Court affirmed the lower court’s decision that the fiduciaries

are to be held accountable under the "prudent man standard of care" set forth in 29 U.S.C. Sec. 1104(a). Under this standard, a fiduciary is obligated to investigate all decisions that will effect the pension plan and must act in the best interest of the beneficiaries. See e.g., Donovan v. Mazzola, 716 F.2d 1226, 1231-32 (9th Cir. 1983), cert. denied, 464 U.S. 1040, 104 S.Ct. 704, 79 L. Ed.2d 169 (1984).

As to the issue of fraud, again the Court stated:

Furthermore, 29 U.S.C. Sec. 1113 incorporates "the fraudulent concealment doctrine" which requires "that plaintiff show (1) that defendants engaged in a course of conduct designed to conceal evidence of their alleged wrongdoing and that (2) they were not on actual or constructive notice of that evidenced, despite (3) their exercising due diligence." (Cites omitted.)

In this case, the fiduciary made it appear that she was in fact correcting an error in the plan with her own funds when, in fact, she was utilizing plan funds to relieve her of responsibility and to eliminate the beneficiary. The Court further stated:

The prudent person standard of ERISA requires a fiduciary of a plan to act "solely in the interest of the participants and beneficiaries...with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a light capacity and familiar with such matters would use." 29 U.S.C. Sec. 1104(a)(1)(B).

This case was cited approvingly in Martin v. Feilen, 965 F.2d. 660 (8th Cir. 1992), where the Court stated:

...for trust laws developed standards of duty applicable to fiduciaries with dual loyalties in addition to the obligation to act in the best interest of the trust. "When a fiduciary has dual loyalties, the prudent person standard requires that he make a careful and impartial investigation of all investment decisions." Schaefer v. Arkansas Medical Society, 853 F.2d 1487, 1492 (8th Cir. 1988), citing Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.), cert. denied, 459 U.S. 1069, 103 S.Ct. 488, 74 L.Ed.2d 631 (1982).

In Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915 (8th Cir. 1994), the Court in interpreting Martin, supra, stated:

In Martin, 965 F.2d at 671, we held that a breach of a fiduciary duty claim involves a three-step analysis. ERISA plaintiffs bear the burden of proving a breach of fiduciary duty and a prima facie case of loss to the plan. Id. Once the plaintiff has satisfied these burdens, "the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by (3) the breach of duty." Id.

Citing to Schaefer, supra, the Court stated:

Under this standard, a fiduciary is obligated to investigate all decisions that will effect the pension plan and must act in the best interest of the beneficiaries.

The issue becomes one as to whether the fiduciary’s conduct was objectively reasonable under the circumstances. Clearly, a review of the facts in this case indicate that such was not the fact and that the fiduciary acted only for her own self dealing and monetary gain.

The ERISA’s statute of limitations, 29 U.S.C. Sec. 1113(a)(2)(A), indicates that an action which commenced "six years after (a) the date of the last action which constituted a part of the breach or violation...or (2) three years after the earliest date on which plaintiff had actual knowledge of the breach or violation...." Courts have held that this section sets a high standard for barring claims against fiduciaries prior to the expiration of the section 6-year limitation period. In Gluck v. Unisys Corp., 960 F.2d 1168, 1176 (3d Cir. 1992), the Court stated:

Actual knowledge of a breach or violation requires that a plaintiff have actual knowledge of all material facts necessary to understand that some claim exists which facts could include...knowledge of a transaction’s harmful consequences...

At page 1177.

The Supreme Court of the United States in Variety Corp. v. Howe, 116 S.Ct. 1065, 1078, 134 L.Ed.2d 130 (1996), held that ERISA provides plan participants and equitable cause of action for an administrator’s breach of fiduciary duty. It appears from that case that the Supreme Court is determined that fiduciary duties operate both independently from and in conjunction with ERISA’s specifically delineated requirements. The Court stated, "[i]f the fiduciary duty applied to nothing more than activities controlled by other specific legal duties, it would serve no purpose." See also, Central States Southeast and Southwest Areas Pension Fund v. Central Transportation, Inc., 472 U.S. 559, 569, 105 S.Ct. 2833, 2839 (1985).

In discussing fiduciary duties at the time of the adoption of ERISA, Congress stated that its objectors behind adopting the fiduciary duty requirement were

that reliance on conventional trust law often is insufficient to adequately protect the interest of plan participants and beneficiaries...and assuming that the law of trust is applicable...without standards by which a participant can measure the fiduciary’s conduct, he is not equipped to safeguard either his own rights or the plan’s assets. H.R.Rep. No. 93-533 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4649.

A fiduciary has a legal duty to disclose to the beneficiary those facts known to the fiduciary but unknown to the beneficiary which the beneficiary must know for its own protection. The duty to disclose material information is a core of the fiduciary’s responsibility. See Eddy v. Colonial Life Insurance Co. of America, 919 F.2d 747, 750 (D.C.Cir. 1990).

The Restatements (Second) of Trusts provides:

(D) Duty in the Absence of a Request by the Beneficiary. Ordinarily the trustee is not under a duty to the beneficiary to furnish information to him in the absence of a request for such information...in dealing with the beneficiary and the trustees on account. However, he is under a duty to communicate to the beneficiary all material facts in connection with the transaction which the trustee knows or should know...Even if the trustee is not dealing with the beneficiary on the trustee’s own account, he is under a duty to communicate to the beneficiary material facts effecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealing with a third person.

See Sec. 173, Comment D (1959).