This is the second article of the LHSFNA’s trustee education series: It’s A BIG Job. The first was Legislative History Reveals Basis of A Trustee’s Duty. We welcome your feedback and questions. Email email@example.com.
LIUNA’s health and welfare funds are entities set up under federal law – the Employee Retirement Income Security Act of 1974 (ERISA). These funds manage revenue collected from signatory employers to provide health care and other benefits to Laborers and their families.
To ensure that these funds are properly operated, each fund has a Board of Trustees. As prescribed by ERISA, the trustees are the fund’s named fiduciary and have ultimate responsibility for control and management of the fund’s operations.
ERISA spells out the duties of the named fiduciary which can be summarized in four basic rules.
First, a fiduciary must act solely in the interest of plan beneficiaries. According to the U.S. Supreme Court, “[A] trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of other parties.” A trustee can never allow the interests of an employer or a union to influence the way he or she acts on behalf of the fund’s participants.
Second, the exclusive purpose rule means that payments from the fund must go only to eligible beneficiaries or for proper and reasonably priced services necessary to administer the fund.
Third, trustees must exercise an extremely high level of prudence – discipline, care, skill and judgment – in the performance of their duties. While a trustee need not be a prudent expert, he or she must reach a standard higher than a prudent ordinary person (often referred to as the “prudent man rule”).
Finally, a trustee must act in accordance with a plan’s governing documents, unless those are contrary to ERISA itself. For example, although a collective bargaining agreement governs a plan and must be implemented by trustees, they may refuse to accept contributions at a collectively bargained rate that is so low that it endangers the plan’s financial status and, thus, the interests of its participants.
These four basic fiduciary duties are supplemented by ERISA rules that prohibit parties in interest transactions. ERISA’s parties in interest list includes the trustees as well as other fiduciaries, fund counsel, fund employees, persons providing services to the plan, an employer of plan participants and relatives of these individuals.
Per se transactions are a specific list of transactions between a plan and a party in interest – such as the sale of property or a service contract – that are prohibited unless they can be shown to be in the interest of the fund. Conflicts of interest involve situations that are not per se prohibitions but, in the context of all the facts and circumstances, demonstrate improper dealing. For instance, if a fiduciary represents both the plan and an outside vendor in a contract negotiation, a conflict exists if the fiduciary fails to act in the best interest of the plan. Finally, transactions in which trustees handle fund assets in a way that benefits their self interests are prohibited, as when a trustee negotiates a service contract for the fund and arranges for a personal discount when he or she needs similar services.
If breaches of the fiduciary responsibility are alleged, a trustee can be sued by the U.S. Department of Labor, by plan participants or by other fiduciaries. While plan assets cannot be used to pay the liabilities of a trustee proven to have violated his or her duty (the trustee is personally liable), successful lawsuits are the exception, and the fund’s fiduciary liability insurance covers the litigation costs of cleared defendants.