ERISA

A pension plan trustee with no professional investment background genuinely does his best, spends considerable personal time researching a DPP sponsor, and honestly believes the investment is sound before committing a large portion of plan assets to it. Is his good-faith personal effort sufficient to satisfy his fiduciary duty of prudence?

1. A.Yes -- a trustee who acts in good faith and does his personal best has satisfied the duty of prudence regardless of his expertise.Wrong. The prudent-expert standard is objective and measured against professional-level care and skill, not against the trustee's personal sincerity or effort.
2. B.No -- the duty of prudence is measured against the standard of a prudent expert familiar with such matters, which good-faith personal effort alone does not satisfy.Correct. A trustee lacking relevant expertise must acquire it or obtain it from a qualified expert; the standard is objective, not a measure of sincere personal effort.
3. C.Yes, provided he documents the hours he spent researching the sponsor before making the decision.Wrong. Documenting time spent does not establish that the decision met the objective prudent-expert standard.
4. D.No, but only because pension plans specifically require professional investment credentials for anyone serving as trustee.Wrong. There is no categorical credentialing requirement to serve as trustee; the issue is that the decision itself must meet the prudent-expert standard, however that expertise is obtained.

Why: ERISA measures a fiduciary's conduct against the standard of a prudent expert familiar with such matters, not against the trustee's own personal effort or sincerity. A trustee who lacks the relevant expertise is expected to either acquire it or obtain it from a qualified expert before making the decision; good-faith diligence from someone without the relevant background does not, by itself, satisfy a standard that is measured against what a knowledgeable professional would have done.

A plan fiduciary considers recommending that the plan invest in a DPP sponsored by an affiliate of the plan sponsor's parent company, reasoning that this would also benefit the sponsoring employer's broader business relationships. Is it appropriate for the fiduciary to weigh that benefit to the employer as part of the investment decision?

1. A.Yes -- fiduciaries may weigh reasonable benefits to the sponsoring employer as one of several factors in an investment decision.Wrong. The exclusive benefit rule does not permit weighing benefits to the employer as a factor in the fiduciary's investment decision.
2. B.Yes, provided the benefit to the employer is disclosed to the plan's participants in advance.Wrong. Disclosure to participants does not cure the underlying problem; the exclusive benefit rule excludes employer benefit from the analysis regardless of disclosure.
3. C.No -- plan assets must be managed for the exclusive benefit of participants and beneficiaries, without regard to any collateral benefit to the employer.Correct. The exclusive benefit rule requires that participant and beneficiary interests alone drive the decision, excluding consideration of benefit to the sponsoring employer.
4. D.No, but only because the sponsor is an affiliate rather than the employer itself, which would otherwise make employer benefit a permissible factor.Wrong. The exclusive benefit rule is not limited to the employer itself; considering any collateral benefit outside participants' and beneficiaries' interests is the problem, regardless of which entity benefits.

Why: ERISA requires that plan assets be managed for the exclusive benefit of the plan's participants and beneficiaries, and a fiduciary evaluating an investment based partly on the benefit it provides to the sponsoring employer is factoring in a consideration the exclusive benefit rule does not permit. An investment decision has to stand on its merits for the participants and beneficiaries alone, independent of whatever collateral advantage it might create for the employer.

A plan's operations involve several individuals who handle plan assets in different capacities -- the named trustee, an administrative employee who processes contributions, and a bookkeeper who reconciles plan records. A compliance question arises about who must be covered by the plan's fidelity bond. Is bonding limited to the named trustee?

1. A.Yes -- bonding requirements apply exclusively to the individual formally designated as trustee.Wrong. Bonding extends to anyone who handles plan funds or property, not only to the person holding the trustee title.
2. B.Yes, but only if the plan document specifically names additional individuals as fiduciaries alongside the trustee.Wrong. Being named a fiduciary in the plan document is not the test; the test is whether the individual actually handles plan funds or property.
3. C.No, but bonding only extends to individuals who exercise investment discretion over plan assets, not to administrative personnel.Wrong. Bonding is not limited to those with investment discretion; it reaches anyone who handles plan funds or property, including administrative personnel.
4. D.No -- bonding generally extends to anyone who handles plan funds or property, including administrative personnel with that kind of access or responsibility.Correct. The bonding requirement is functional, reaching individuals who handle plan assets regardless of formal title.

Why: ERISA's bonding requirement generally extends to anyone who handles plan funds or other plan property, not merely to the person formally designated as trustee. An administrative employee or bookkeeper who has access to or responsibility for handling plan assets falls within the scope of who must be covered, even though neither holds the trustee title.

A plan's written investment policy statement limits alternative investments like DPPs to a small percentage of total plan assets. A trustee, personally convinced that a particular DPP opportunity is unusually attractive, commits an amount well above that stated limit, believing his individual judgment justifies departing from the plan's own written policy. Is departing from the plan's investment policy statement on this basis appropriate?

1. A.No -- the trustee must act in accordance with the plan's written investment policy, and personal conviction about a specific opportunity does not justify unilaterally exceeding its limits.Correct. Fiduciaries are required to follow the plan's governing documents, including its investment policy, absent a proper amendment through the plan's own governance process.
2. B.Yes -- a trustee's individual professional judgment about a specific opportunity may override the plan's written investment policy when he is confident enough in the decision.Wrong. Individual conviction, however sincere, does not permit unilaterally departing from limits set in the plan's own governing documents.
3. C.Yes, provided the trustee documents his reasoning for departing from the policy in the plan's files.Wrong. Documenting the reasoning does not cure departing from the written policy without following the plan's own process for changing it.
4. D.No, but only because DPPs specifically may never be held in any percentage above what a plan's general diversification requirement allows.Wrong. The problem here is departing from this specific plan's own adopted investment policy limit, not a general rule capping DPP holdings for every plan.

Why: A fiduciary is generally required to act in accordance with the plan's governing documents, including its own written investment policy, so long as doing so is consistent with ERISA. A trustee's individual conviction that a particular opportunity is unusually attractive does not, by itself, justify departing from limits the plan has adopted in writing; if the trustee believes the policy itself should change, the appropriate path is to have the policy amended through the plan's own governance process, not to unilaterally exceed it in a single transaction.