That was the word recently from the Department of Labor’s Pension and Welfare Benefits Administration (PWBA) in an advisory opinion prepared for a union pension fund concerned about potential actuarial problems, according to a news report in the Washington-based legal publisher BNA.
In the advisory opinion, PWBA officials said most such hold harmless provisions in a service provider contract wouldn’t be nullified by ERISA. In fact, PWBA affirmed that plan sponsors should carefully consider all potential risks to participants and beneficiaries – and would be required to determine potential risk of loss and costs to the plan that might result from a service provider’s act or omission subject to such a limitation.
PWBA said a plan fiduciary should ponder:
- the potential risk of loss and costs to the plan that might result from a service provider’s act or omission subject to a proposed limitation of liability or indemnification provision
- the potential for, and outside limits of, such a loss
- any additional actions that may be available to the plan to minimize such a loss.
“At a minimum, compliance with these standards would require that a fiduciary assess the plan’s ability to obtain comparable services at comparable costs either from service providers without having to agree to such provisions, or from service providers who have provisions that provide greater protection to the plan,” the opinion said, according to the BNA report.
Not surprisingly, PWBA officials said they wouldn’t approve indemnification agreements relating to fraud or willful misconduct. Such agreements would be “void as against public policy.”
Even though the Central Pension Fund of the International Union of Operating Engineers and Participating Employers ended up not hiring an actuarial consultant asking for an indemnification provision, plan sponsors still asked for PWBA guidance on the issue.
Fund officials said it was likely that they would have to deal with the issue again soon – given the post-Enron scrutiny over virtually all corporate finance issues.
The fund said an actuarial firm, in connection with discussions relating to the renewal of its contract, advised that it was requiring all new engagement letters to contain, among other things, limitation of liability and indemnification provisions, the opinion said.
PWBA Advisory Opinions are online at http://www.dol.gov/pwba/programs/ori/advisory2002/opnion02.htm
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