Reproduced with permission from Benefits Practitio-
ners’ Strategy Guide, BPRC, , 12/15/2014. Copyright 姝
2014 by The Bureau of National Affairs, Inc. (800-372-
1033) http://www.bna.com
The Directed Trustee in the Post-Dudenhoeffer World
Susan Peters Schaefer
McDermott Will & Emery, LLP
Joseph Kolbe Urwitz
McDermott Will & Emery, LLP
The authors would like to thank Jo-el J. Meyer for her earlier contributions to this report.
Overview
Court cases challenging the actions of Employee Re-
tirement Income Security Act fiduciaries have contin-
ued unabated since the scandal of Enron in 2002. Since
then, a large number of cases are in the ‘‘stock drop’’
area, which encompasses cases relating to employer
securities investments when the stock price drops se-
verely. The litigation has focused on whether a pre-
sumption of prudence exists that protects fiduciaries
holding employer securities investments on behalf of a
retirement plan. In June 2014, the U.S. Supreme Court
ruled in the case of Fifth Third Bancorp v. Dudenhoef-
fer that ERISA doesn’t provide a presumption of pru-
dence to protect fiduciaries of plans investing in
employer securities.
1
Now that the Dudenhoeffer deci-
sion resolves the presumption issue, it is reasonable to
expect that ERISA cases may return to focus on the
fiduciary duties of a directed trustee.
ERISA provides that a directed trustee is intended to
follow the direction of a plan’s ‘‘named fiduciary.’’ The
directed trustee’s exposure for ERISA fiduciary liabil-
ity, it stood to reason, was therefore limited. Directed
trustees may, however, have fiduciary exposure. When
employees’ retirement benefits have suffered significant
losses, plaintiffs have looked to recover from all in-
volved, including the directed trustee. Some questions
that cases have raised are:
•Is a retirement plan’s directed trustee liable when
it follows the directions of a named fiduciary but the
resulting investment performs poorly?
•What happens when the directions given by the
named fiduciary conflict with the plan’s purpose or with
ERISA?
•May a directed trustee diverge from the named
fiduciary’s directions?
•If a directed trustee intervenes to take a position
contrary to the named fiduciaries, is the directed
trustee subject to more fiduciary liability than it would
otherwise have under the plan?
In December 2004, the Department of Labor’s Em-
ployee Benefits Security Administration released gen-
eral guidance on the responsibilities of directed trustees
with respect to directions involving publicly-traded em-
ployer securities.
2
Federal courts have relied on this
guidance to find that directed trustees didn’t breach
their fiduciary duties by not acting on their own initia-
tive, when faced with public information about a plan
sponsor, to halt employee investment in the sponsor’s
stock.
3
While the focus had shifted away from directed
trustees’ responsibilities and toward the presumption of
1
573 U.S. __, 2014 BL 175777, 58 EBC 1405 (2014).
2
Field Assistance Bulletin 2004-03.
3
In re WorldCom Inc. ERISA Litigation, 354 F. Supp. 2d 423,
34 EBC 1545 (S.D.N.Y.2005); Summers v. UAL Corporation, 453
F.3d 404, 38 EBC 1065 (7th Cir.2006), cert. denied, 549 U.S. 1245
(2007).
0/14 The Bureau of National Affairs, Inc.
Benefi ts Practice
Resource Center™
