District Court Opines on Successor Fiduciary Liability

A recent case highlights the importance of paying attention to successor fiduciary liability when taking on a benefits plan. This case provides important color to the ERISA provision that prevents plan fiduciaries from facing liability for breaches that occurred before and after their tenure as a fiduciary responsible for the benefit plan.

Fuller v. SunTrust Banks, Inc.

The defendants in this case include SunTrust, the SunTrust Banks Benefits Plan Committee, and individual fiduciaries Jorge Arrieta, Harold Bitler, and Mimi Breeden. The case focused on the inclusion of SunTrust-affiliated investments without a process in place for the plan to consider and include non-SunTrust-affiliated investments. The lawsuit went after both SunTrust and the individuals who were on the committee for the employer-sponsored 401(k) plan.

One complication with the lawsuit is that the decision to use SunTrust-affiliated products was made before the period covered under the lawsuit. Different individuals than those named in the suit were on the fiduciary committee during the period the lawsuit covers.

Because they were not the ones to make the decision about including the affiliated products, the current fiduciaries asked to be dismissed from the lawsuit. They argued that they could not be held liable for the actions of prior fiduciaries. The court disagreed, referencing an ERISA rule that states that fiduciaries are not necessarily liable for breaches that occur before or after their tenure but that they can be held liable when they fail to remedy a breach created by a predecessor plan fiduciary, especially when the breach creates a continuing impact on the plan and plan participants.

In order to be liable for a breach by a prior fiduciary, the current fiduciary must have “actual knowledge” of the breach and, even with this knowledge, not take any action to remedy the breach. However, lack of actual knowledge due to “willful blindness” will not help successor fiduciaries avoid liability.

Lack of Actual Knowledge

In the SunTrust case, the court held that while the current plan fiduciaries could, in fact, be responsible for the breach where only SunTrust-affiliated products were used, in the specific case, none of the fiduciaries named had actual knowledge of their predecessor’s breach of failing to have a process to include non-affiliated products. Simply becoming familiar with the plan’s affairs did not create actual knowledge.

Cases like this one provide color and depth to the ERISA rules and help the attorneys at Hall Benefits Law design processes and advise clients on how best to structure and operate benefits plans. Our clients want to attract and retain top talent while at the same time protecting themselves from liability and costly litigation. To learn more about achieving this important balance, call our team today at 678-439-6236, or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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