Academic journal article Defense Counsel Journal

ERISA Breach of Fiduciary Duty: Shifting the Burden of Proving Causation to the Defendant

Academic journal article Defense Counsel Journal

ERISA Breach of Fiduciary Duty: Shifting the Burden of Proving Causation to the Defendant

Article excerpt

THE Employee Retirement Income Security Act of 1974 ("ERISA") aimed to protect America's workers. It sought to decrease fraud and guard against harm to beneficiaries. (1) Congress passed ERISA to protect beneficiaries from losing all they had saved because of the wrongful actions of a fiduciary. (2) According to the U.S. Department of Labor, over half of the people who worked in 2012 worked for employers sponsoring a retirement plan. (3) Over sixty-one million people participated in a plan in 2012.

A split of authority currently exists whether the beneficiary can shift the burden of proving causation of losses to the fiduciary. The Fourth, (4) Fifth, (5) and Eighth (6) Circuits have held that the plaintiff can shift this burden, but the Second, (7) Sixth, (8) Ninth, (9) and Eleventh (10) Circuits have held that a shift should not occur. The remaining Circuits have noted the split, but they have declined to make a decision on the issue. (11) It is unclear if the plaintiff must prove causation or can shift that burden to the defendant. Recently, the Supreme Court denied a certiorari petition on this issue. (12) Consequently, the circuits must determine for themselves whether and in what circumstances shifting the burden to prove causation is appropriate.

This article compiles the status of this issue across the country, analyzes the arguments presented in favor of burden-shifting, and argues that the burden of proof for causation should be shifted to the fiduciary but only after the beneficiary meets certain criteria. This shift is based on the common law of trusts, which shifts the burden to the trustee once the beneficiary proves duty, breach, and loss. (13) Although trust law demands the burden shift, this article also suggests the shift is beneficial because the defendant is in a better position to prove causation and promoting such a shift will benefit fiduciary relationships.

I. Background

Prior to the enactment of ERISA, (14) employee retirement plans lacked adequate funds for plan participants. (13) Participants could not easily access information about their plans, and there were many cases where fiduciaries were engaged in criminal behavior. (16) While Congress attempted to address these issues with various acts of legislation, these problems persisted. (17)

In addition to the substantive problems with pension plans, there were also problems with the litigation regarding pension plan fiduciary breaches. (18) Benefit plans were subject to "the crazy-quilt system of legal jurisdiction throughout the various states governing non-collectively bargained plans." (19)

In 1962, President Kennedy appointed the Committee on Corporate Pension Funds. The Committee conducted a study that concluded that the prior legislation was not enough, sparking nine years of Congressional debate. (20) These debates and investigations ultimately resulted in the enactment of the Employee Retirement Income Security Act ("ERISA") in 1974. (21)

ERISA governs most voluntarily established private-sector retirement plans. (22) It requires the disclosure of certain information to the plan's beneficiaries and sets out standards for each plan. (23) Managing each type of retirement plan requires a fiduciary. (24) The Department of Labor defines the role of a fiduciary as "[u]sing discretion in administering and managing a plan or controlling the plan's assets." (25) Each plan must have at least one named fiduciary. (26) This person must have control over the plan's operations. (27) Typically, a plan's fiduciaries will "include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan's administrative committee, and those who select committee officials. (28) When a person is acting on behalf of the plan, she establishes herself as a fiduciary. (29)

ERISA defines a fiduciary as:

   Except as otherwise provided in subparagraph
   (B), a person is a fiduciary
   with respect to a plan to the extent (i)
   he exercises any discretionary authority
   or discretionary control respecting
   management of such plan or exercises
   any authority or control respecting
   management or disposition of its
   assets, (ii) he renders investment
   advice for a fee or other compensation,
   direct or indirect, with respect to any
   moneys or other property of such
   plan, or has any authority or responsibility
   to do so, or (iii) he has any
   discretionary authority or discretionary
   responsibility in the administration
   of such plan. … 
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