Directed Trustees Not Expected to Second Guess

In the case of DiFelice v. US Airways Inc., US District Judge T.S. Ellis III wrote “By including [Section] 403(a) in ERISA, Congress plainly meant to create a subset of ERISA fiduciaries with a statutorily defined duty different from and more narrowly circumscribed than the general duty of ordinary care imposed on other ERISA fiduciaries,” BNA reports.

Participant Vincent DiFelice claimed that US Airways and Fidelity Management Trust Co. breached their fiduciary duties by allowing plan participants to invest in US Airways stock in the years leading up to US Airways’ bankruptcy, according to BNA.   Fidelity asked for the claims against it to be dismissed since, as directed trustee, it followed US Airways investment decisions.

In his opinion, Ellis said, “Fidelity’s liability is limited to instances in which it fails to follow such proper directions or it complies with directions that are improper, or contrary to the Plan or ERISA.”   He further clarified that “proper” directions only had to “conform to certain formalities that identify a direction as valid or genuine.”

According to BNA, the opinion also stated that ERISA Section 403(a), applying to directed trustees, does not impose on directed trustees an implicit duty of ordinary care and prudence to second guess the wisdom of the named fiduciary’s directions as to the plan’s investments.   Ellis said, “…it takes little imagination to see the disputes and litigation such an arrangement would spawn.”

The court cited firm support of its opinion from Department of Labor’s (DoL) Field Assistance Bulletin 2004-03, which interpreted ERISA Section 403(a) with regard to directed trustee liability (See EBSA Issues Directed Trustee Responsibility Guidance ), BNA said.   According to the opinion,   “[I]n the view of the DOL, a direction to retain company stock as a plan investment option is not contrary to ERISA unless the shares are worthless as a matter of fact, and not as a matter of conjecture or investment judgment about the future.”

Ellis pointed out that information available about US Airways prior to its bankruptcy did not warrant an objection from Fidelity to US Airways direction to invest the plan in its stock.   He rejected DiFelice’s argument that Fidelity’s trading of its actively managed mutual funds provided evidence that Fidelity was aware that investment in US Airways stock was imprudent, saying “Fidelity’s duty as a directed trustee is very different from its duty as an active fund manager.”