The Duty to Monitor Appointed Fiduciaries Under ERISA

Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1109(a).

ERISA, 29 U.S.C. § 1109(a).

ERISA, 29 U.S.C. § 1002(21)(A).

ERISA, 29 U.S.C. § 1105(c)(1)(B).

Interpretive Bulletin, 29 C.F.R. §2509.75-8, D-4 (emphasis added).

Interpretive Bulletin, FR-11, FR-17 (emphasis added).

See, for example, DOL Amicus Brief filed in In re WorldCom ERISA Litigation, Docket No. 151, Case No. 02 Civ. 4816 (S.D.N.Y. January 16, 2004).

In re WorldCom ERISA Litigation, Docket No. 151, Case No. 02 Civ. 4816 (S.D.N.Y. January 16, 2004).

In re WorldCom, Inc. 263 F. Supp. 2d 745, 761 (S.D.N.Y. 2003).

Crowley v. Corning, 234 F. Supp. 2d 222 (W.D.N.Y. 2002).

In re Williams Co. “ERISA” Litigation, 271 F. Supp. 2d 1328 (N.D. Okla. 2003).

In re Williams Co. “ERISA” Litigation, 2003 WL 22794417, *1 n.1 (N.D. Okla. October 27, 2003).

In re Williams Co. “ERISA” Litigation, 2003 WL 22794417, *1 n.1 (N.D. Okla. October 27, 2003).

See, for example, Coyne & Delany Co. v. Selman, 98 F. 3d 1457, 1465 (4th Cir. 1996) (recognizing duty to monitor fiduciary appointees, though cautioning it was not “open-ended liability”); Henry v. Frontier Indus., Inc., 863 F. 2d 886, 1988 WL 132577, *2 (9th Cir. 1988) (unpub.) (finding officer “was a fiduciary of the ESOP by virtue of his power to appoint and retain, and his duty to monitor the member[s] of the Administrative Committee”); Leigh v. Engle, 727 F. 2d 113, 135 (7th Cir. 1984) (held that two fiduciaries responsible for selecting and retaining the plan administrators had a “duty to monitor appropriately the administrators' actions”); In re Enron Corp. Securities Derivative & ERISA Litigation, 284 F. Supp. 2d 511, 553, 661 (S.D. Tex. 2003) (recognizing duty to monitor fiduciary appointees); Arakelian v. National Western Life Ins. Co., 755 F. Supp. 1080, 1084 (D.D.C. 1990) (“The fact that all administrative functions of the Plan were delegated to the Plan administrator [National Western] did not and does not absolve the trustees of their duty to review and insure that the administrator was action in the best interests of the participants.”).

Woods v. Southern Co., 396 F. Supp. 2d 1351, 1374 (N.D. Ga. 2005); accord, In re Cardinal Health Inc. ERISA Litigation, 424 F. Supp. 2d 1002 (S.D. Ohio 2006); In re Westar Inc. ERISA Litigation, 2005 WL 2403832 (unpub.) (D. Kan. September 29, 2005); In re JDS Uniphase Corp. ERISA Litigation, 2005 WL 1662131 (N.D. Cal. July 14, 2005); In re Sprint Corp. ERISA Litigation, 388 F. Supp. 2d 1207 (D. Kan. 2004); In re Syncor ERISA Litigation, 351 F. Supp. 2d 970 (C.D. Cal. 2004); In re AEP ERISA Litigation, 327 F. Supp. 2d 812 (S.D. Ohio 2004); In re Elec. Data Sys. Corp. ERISA Litigation, 305 F. Supp. 2d 658 (E.D. Tex. 2004); Rankin v. Rots, 278 F. Supp. 2d 853 (E.D. Mich. 2003).

See, for example, Whitfield v. Cohen, 682 F. Supp. 188, 194 (S.D.N.Y. 1988) (plan fiduciary held liable for imprudent selection of plan investment manager; never inquired into investment manager's credentials, experience, references, registration with Securities and Exchange Commission, etc.); Donovan v. Mazzola, 716 F. 2d 1226 (9th Cir. 1983) (trustees held liable for hiring physician to conduct feasibility study without inquiring into his qualifications or experience, and without seeking competitive bids, etc.).

In re Enron Corp. Securities Derivative & ERISA Litigation, 284 F. Supp. 2d 511 (S.D. Tex. 2003); accord, In re Polaroid ERISA Litigation, 362 F. Supp. 2d 461 (S.D.N.Y. 2005); In re Syncor ERISA Litigation, 351 F. Supp. 2d 970 (C.D. Cal. 2004); In re Sears, Roebuck & Co. ERISA Litigation, 2004 U.S. Dist. LEXIS 3241 (N.D. Ill. March 2, 2004) (unpub.) (rejecting argument that duty to monitor does not include duty to keep appointees informed of material non-public information).

In re General Motors ERISA Litigation 2006 WL 897444 (E.D. Mich. April 6, 2006).

See In re General Motors ERISA Litigation, 2006 WL 897444 (E.D. Mich. April 6, 2006) (failure to give necessary information to appointed fiduciaries sufficiently alleged as possible breach of duty to monitor); In re Polaroid ERISA Litigation, 362 F. Supp. 2d 461 (S.D.N.Y. 2005) (allegation that there were no steps to monitor fund managers and plan administrators supported a monitoring claim against CEO); In re Sprint Corp. ERISA Litigation, 388 F. Supp. 2d 1207 (D. Kan. 2004) (court found monitoring claim sufficiently alleged facts to support breach where plaintiffs alleged monitoring fiduciaries had actual knowledge of fiduciaries' breaches); In re Honeywell Int'l ERISA Litigation, 2004 U.S. Dist. LEXIS 21585 (D.N.J. September 14, 2004) (allegation that monitoring fiduciaries participated in large-scale fraud sufficient to support claim).

American Fed. of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc. of the U.S., 841 F. 2d 658, 665 (5th Cir. 1988) (“Liability for failure to adequately train and supervise an ERISA fiduciary arises where the person exercising supervisory authority is in a position to appoint or remove plan administrators and monitor their activities.”).

Martin v. Feilen, 965 F. 2d 660, 669-70 (8th Cir. 1992) (“director's duty to monitor the actions of appointed trustees may impose a duty to prevent wrongful conduct”).

Liss v. Smith, 991 F. Supp. 278, 311 (S.D.N.Y. 1998).

In re Polaroid ERISA Litigation, 362 F. Supp. 2d 461, 465 (S.D.N.Y. 2005).

Leigh v. Engle, 727 F. 2d 113, 135 (7th Cir. 1984); accord, Coyne & Delany Co. v. Selman, 98 F. 3d 1457, 1466 n. 10 (4th Cir. 1996); In re Elec. Data Sys. Corp. ERISA Litigation, 305 F. Supp. 2d 658, 671 (E.D. Tex. 2004). See also, for example, In re Merck & Co. Securities Derivative & ERISA Litigation, 2006 WL 2050577 (D.N.J. July 11, 2006) (dismissing imprudent investment claim against company and CEO but retaining monitoring claim against CEO because complaint alleged that he was heavily involved in the appointment of the fiduciary committee members); In re Reliant Energy ERISA Litigation, 336 F. Supp. 2d 646, 657 n. 13 (S.D. Tex. 2004) (“The duty to monitor the performance of the Benefits Committee members does not give rise to overarching liability for the Committee's investment decisions. Liability based on a failure to monitor does not arise unless the appointing fiduciary failed to periodically monitor the performance of each of the appointed members of the REI Benefits Committee.”).

See, for example, Edgar v. Avaya, Inc., 2006 WL 1084087 (D.N.J. April 25, 2006) (complaint failed to state claim for breach of fiduciary duty, to monitoring claim failed as well); In re RCN Litigation, 2006 WL 753149 (D.N.J. March 21, 2006) (fiduciaries did not breach duties, so Administrative Committee overseeing the fiduciaries could not be held liable for failing to monitor them); In re Syncor ERISA Litigation, 410 F. Supp. 2d 904 (C.D. Cal. 2006) (duty to monitor fiduciaries claim is derivative of prudence claim; because prudence claim failed, so did monitoring claim); In re Calpine Corp. ERISA Litigation, 2005 WL 1431506 (N.D. Cal. March 31, 2005) (unpub.) (because imprudent investment claim failed, so did monitoring claim). But see In re Sprint Corp. ERISA Litigation, 388 F. Supp. 2d 1207 (D. Kan. 2004) (court dismissed imprudent investment and failure to disclose information claims against directors, but refused to dismiss monitoring claim, on the basis that complaint alleged sufficient facts to support breach).

See note 13 and cases cited therein.