DoL: Appointing Fiduciaries Obligated to Monitor Plan Officials

January 14, 2004 ( - ERISA gives those who put plan fiduciaries into place an obligation to to keep an eye on the work of those they appoint and to make changes if the appointees' conduct falls short of standards.

The US Department of Labor (DoL) included that reminder in a legal brief it submitted in the class-action lawsuit filed over the WorldCom implosion and subsequent loss of millions of dollars in 401(k) assets.

Filed in US District Court in New York City , the brief says that it is the DoL’s long-held position that individuals who appoint trustees or other pension plan fiduciaries are themselves fiduciaries. That’s the capacity in which those doing the appointing must take on ERISA responsibility to monitor the work of those they appoint, the DoL said.

The brief stresses, however, that fiduciaries making those appointments don’t guarantee the actions or of the success of the investment decisions made by the fiduciaries they appoint.   Rather, DoL officials asserted in the document, the obligations of appointing fiduciaries is to make decisions to appoint or remove a fiduciary with “prudence and loyalty,” and to periodically check in to see how those appointees are making out.   Appointing fiduciaries have a responsibility to implement reasonable procedures to review and evaluate the performance of appointees on an ongoing basis.

Plaintiffs in the In re WorldCom, Inc. litigation charged that members of the WorldCom Board of Directors exercised authority over the appointment of plan fiduciaries, and therefore, that directors were themselves fiduciaries.   Also, they alleged that the defendant directors didn’t properly monitor the work of the fiduciaries they appointed and that the plan was injured as a result.

The brief, filed by DoL’s Employee Benefits Security Administration (EBSA) will be available at .

>The EBSA also got involved in the Enron litigation by filing a similar friend-of-the-court brief (See  Fundamental Differences ).