Academic journal article
By Mallen, Ronald E.; Vallone, Paul E.
Defense Counsel Journal , Vol. 68, No. 4
IN THIS new millennium, lawyers retained to perform services for a plan governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. [section] 1001 et seq., face the usual exposures from a client for professional errors. Lawyers can be liable if they negligently perform services for an ERISA-governed plan, just as in other areas of law. Liability under ERISA, however, is unlikely. Yet, a recent decision by the U.S. Supreme Court suggests that ERISA exposure could exist and be substantial. A related concern is that exposure under ERISA's remedial provisions is not likely to be covered under conventional professional liability insurance.
The fundamental exposure under ERISA liability is for fiduciaries of an ERISA plan. A primary purpose of ERISA is to protect employee benefit plans by establishing standards of conduct, responsibility and obligations for fiduciaries of such plans. (1) Fiduciaries are personally liable under ERISA for breaches of fiduciary duty to an ERISA covered plan. 29 U.S.C. [section] 1109. A fiduciary who commits a breach is responsible for any resulting monetary losses to the plan. The fiduciary is also subject to "such other equitable or remedial relief as the court may deem appropriate." 29 U.S.C. [section] 1109(a).
Although attorneys occupy fiduciary relationships with clients, this does not confer ERISA fiduciary status on attorneys representing ERISA-governed plans. Under ERISA, a "fiduciary" is defined as one who (1) exercises discretionary authority or control over plan management, administration or disposition of plan assets, or (2) renders investment advice for a fee or other compensation. 29 U.S.C. [section] 1002(21)(A). ERISA fiduciary status in this latter category requires, according to the regulations issued pursuant to the statute, that the investment advice be rendered (1) by one having "discretionary authority or control ... with respect to purchasing or selling securities" or (2) on a "regular basis." 29 C.F.R. [section] 2510.3-21(c)(1). ERISA also creates fiduciary status for persons "named" as fiduciaries in the plan instrument or "identified" as such by an employer or employee organization. 29 U.S.C. [section] 1102(a)(2). Attorneys who perform services on behalf of a plan are seldom designated as fiduciaries in the plan documents.
Thus, attorneys must perform more than the "usual professional services" to be considered an ERISA fiduciary. (2) The inquiry requires a functional examination of the lawyer's services. For example, an attorney whose engagement is limited to counseling the plan on compliance issues or otherwise acting solely in an advisory capacity is not a plan fiduciary under ERISA. (3)
Although the usual retention will not create fiduciary status under ERISA, there are situations in which attorneys have "crossed the line." For example, in Mason Tenders District Council Pension Fund v. Massera, (4) because the attorney provided regular input concerning plan investments, there was an inference that he was a fiduciary under ERISA. Similarly, in Bouton v. Thompson, (5) a lawyer who had authority to make withdrawals from a bank account holding ERISA plan assets exercised the requisite degree of discretionary control over the plan to be a fiduciary.
Thus, attorneys are not completely insulated from fiduciary liability under ERISA, but the instances in which they are can be regarded as exceptions rather than the rule. Because ERISA defines a "fiduciary" in functional terms as one having discretionary control over plan assets, management or administration, and most engagements for a lawyer's legal services do not extend to such tasks, ERISA's fiduciary liability provisions portend minimal exposure for attorneys.
Another source of liability for attorneys retained by a plan is under ERISA's "party in interest" liability provisions. Attorneys do not need to be ERISA fiduciaries to trigger such exposure, because a "party in interest" is defined as "a person providing services" to a covered plan. …