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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The trustee of a profit-sharing plan that gave participants discretion to direct the investments in their accounts, but which did not meet the conditions of ERISA §404(c), was still shielded from a breach of fiduciary duty claim by an implied exception to ERISA's non-delegation provision, according to the U.S. Court of Appeals in Chicago (CA-7).
After the market value of mutual funds held in a company profit-sharing plan plunged during the 2000-2002 period, one of the plan participants brought a breach of fiduciary duty action against the plan's administrator and trustee. The profit-sharing plan had been established in 1991 for the employer's 100 employees and plan assets had been invested into four mutual funds. Participants were updated on the performance of their accounts annually. During the period from 1991 to 2002, plan participants were only permitted one change annually in how their investments were allocated into each of the four available mutual funds.
The participant alleged that the trustee, by delegating control over plan assets to plan participants, had violated the ERISA §403(a) non-delegation provision, which states that trustees have exclusive authority over management of plan assets. In response, the court noted that under ERISA §404(c) and ERISA Reg. §2550.404c-1, fiduciaries are not responsible for losses resulting from a participants' exercise of control over assets in their accounts, as long as the plan meets the conditions contained in that section.
The court ruled that the plan here did not fall under the ERISA §404(c) exception because it did not meet the condition of permitting participants the opportunity to change investments at least once every three months. However, the court further noted that under ERISA Reg. §2550.404c-1(a)(2), the safe harbor provided by ERISA §404(c) was not the only means by which a trustee could escape liability for losses under participant-directed plans. A plan's failure to meet the requirements of ERISA §404(c) does not necessarily mean the plan violated ERISA, the court ruled. The plan may instead fall within an implied exception to the nondelegation provision if the actions of the trustee, when delegating decision-making authority to participants, did not violate the trustee's fiduciary duty.
The participant alleged that the trustee breached its fiduciary duty to select and monitor plan investments by allowing the plan's funds to remain invested in the same four mutual funds since 1991, and not transferring plan assets to other funds when the existing funds sharply declined in value. The court accepted the trustee's explanation that the funds chosen were conservative and stable funds meant to be held over the long term. The court agreed it had not been a breach of fiduciary duty for the trustee to decide to keep plan assets invested in the funds during a period of market fluctuation, and ruled that the trustee's actions fell within the implied exception to ERISA's non-delegation provision.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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