Author(s):
Carol Buckmann
August 2014
It has always been difficult to determine the dividing line between general investment recommendations and the more targeted investment advice that results in fiduciary status under the Employee Retirement Income Security Act of 1974 (“ERISA”).
The ERISA rules date back to 1975, and they contain a functional definition of investment adviser that does not require that the adviser acknowledge fiduciary status. Investment advisers become fiduciaries based on what they do. Given that functional definition, it is somewhat surprising that we do not have clearer rules defining when investment advice is subject to the fiduciary responsibility provisions of ERISA. The differences in liability exposure and plan protections are striking. A fiduciary must give advice based on the best interests of plan participants, must function as a prudent expert, cannot personally benefit from the use of plan assets and may be personally liable for losses resulting from fiduciary breaches. None of these restrictions apply to non-fiduciary advisers.
A recent decision by the United States Court of Appeals for the Fifth Circuit, Tiblier v. Dlabal, has further muddied the waters in the area by holding that an adviser with no discretionary authority over plan management or assets cannot be an ERISA fiduciary unless the adviser’s fee is paid by the plan.
The Fifth Circuit upheld the district court’s granting of summary judgment in favor of Dlabal because Dlabal was compensated with a share of the unaffiliated broker’s commission on the investment being challenged. This result appears to be based on a misreading or rejection of some long-standing ERISA regulations. It also provides a loophole for those who give investment advice on which plan fiduciaries rely to escape fiduciary responsibility by crafting creative compensation arrangements and becoming what I call “Teflon Fiduciaries” – those who will not be held accountable for bad advice.
This article will examine whether this is the appropriate policy, suggest how the Fifth Circuit could have handled this issue differently and, finally, will recommend some best practices for plan fiduciaries to avoid finding themselves in the same situation as Tiblier.
Read more.
Reproduced with permission from Tax Management Memorandum, 08/11/2014. Copyright © 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com/.