ERISA Newsletter

• Published date: 10 July 2020
• Subject Matter: Corporate/Commercial Law, Employment and HR, Coronavirus (COVID-19), M&A/Private Equity, Retirement, Superannuation & Pensions, Health & Safety, Employee Benefits & Compensation, Privilege, Employment and Workforce Wellbeing, Operational Impacts and Strategy
• Law Firm: Proskauer Rose LLP
• Author: Mr Russell Hirschhorn and Myron Rumeld

Editors Overview

We kick off this edition of our Newsletter with an article that I co-authored with my partner, Paul Hamburger, explaining the doctrine commonly referred to as the fiduciary exception to the attorney-client privilege. The article provides a good refresher on fiduciary exception principles with updated case law and provides practice points that can help employee benefits counsel and their clients better understand how best to protect the privacy of their communications.

There are several pieces of agency guidance that made the news this past quarter and that are discussed below. They include proposed and final guidance from the U.S. Department of Labor on the topics of ESG investing, fiduciary considerations for including private equity allocations in defined contribution plan investments, and electronic delivery of retirement plan disclosures. In addition, the DOL, IRS, and PBGC have issued COVID-19 related guidance. The Treasury Inspector General for Tax Administration also issued a report that offers helpful insights for employers who may be assessed shared responsibility payments because the IRS thinks they failed to offer adequate health coverage, as required by the Affordable Care Act.

The agency guidance, while important, should not overshadow the Supreme Court's decision in Thole v. U.S. Bank, where the Court concluded that the plaintiffs had no constitutional standing to pursue their challenges related to U.S. Bancorp's defined benefit plan. Other case law developments discussed in the Newsletter include decisions on 403(b) plan investment litigation, mental health parity, choice of law, fiduciary breach claims related to a single stock fund in a 401(k) plan, and retiree healthcare benefits.

Have a safe and healthy summer!

Fiduciary Exception to Attorney-Client Privilege for ERISA Plans*

By: Russell L. Hirschhorn and Paul M. Hamburger

This practice note explains the doctrine commonly referred to as the fiduciary exception to the attorney-client privilege. It is important for plan sponsors, fiduciaries, and their legal advisors to understand the rules regarding when the fiduciary exception doctrine can result in communications between a plan fiduciary and an attorney not to be privileged and become susceptible to being produced in litigation. This practice note also explains how the fiduciary exception doctrine has been used to try to obtain communications ordinarily protected by the attorney work product doctrine. The principles outlined in this practice note can help employee benefits counsel and their clients better understand how best to protect the privacy of their communications and how to anticipate when these communications may be open to examination by plan participants.

This practice note is organized in the following sections:

• General Principles Governing the Attorney-Client Privilege
• Identifying the Client in the Employee Benefit Plan Context
• The Fiduciary Exception to Attorney-Client Privilege
• Application of the Fiduciary Exception in Common Employee Benefit Situations
• Application of the Fiduciary Exception to the Attorney Work Product Doctrine
• Best Practices for ERISA Plan Sponsors, Fiduciaries, and Benefits Advisors for Navigating the Fiduciary Exception to the Attorney-Client Privilege

General Principles Governing the Attorney-Client Privilege

The attorney-client privilege refers to a legal privilege that serves to keep secret those confidential communications between an attorney and the attorney's client. It protects the fact that the communication took place as well as the substance of those communications. The privilege often is asserted in the face of a legal demand for documents or communications whether as a discovery request from an opposing party in litigation or as a government request in the context of an investigation, audit, or other inquiry. Although such requests often do not surface until well after communications have taken place, it is important to always be thinking about whether communication is intended to be kept confidential.

The attorney-client privilege serves several purposes, including the primary purpose of encouraging the free flow of information between attorney and client. The U.S. Supreme Court has long recognized the importance of the attorney-client privilege. In Upjohn Co. v. United States, the Court observed:

The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law . . . . Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.

Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).

For the attorney-client privilege to apply, there must be (1) a communication (2) made between privileged persons (3) in confidence and (4) for the purpose of obtaining or providing legal assistance for the client. Restat 3d of the Law Governing Lawyers, ' 68. A communication is defined as "any expression through which a privileged person . . . undertakes to convey information to another privileged person and any document or other record revealing such an expression." Restat 3d of the Law Governing Lawyers, ' 69.

Application in the Context of Employee Benefit Plans

Although ethical and privilege issues arise across all disciplines, they are particularly prevalent and tricky in their application to the employee benefits practice. When, for example an ERISA plan fiduciary attends to a participant's claim for benefits under an employee benefit plan and wishes to consult an attorney for advice, those communications may not be protected from disclosure by the attorney-client privilege.

The challenge in the employee benefit plan context is to understand exactly when and how the attorney-client privilege will apply to the various scenarios encountered by the employee benefits advisor. The remainder of this practice note explores these questions and provides practical ideas to help benefit plan advisors and their clients best guard their communications.

Identifying the Client in the Employee Benefit Plan Context

The Employee Retirement Income Security Act (ERISA) is a federal law that protects the assets of millions of American workers who invest their funds in employer-sponsored retirement plans throughout their working lives to ensure that the funds will still be there when they retire. ERISA-covered plans operate as separate entities. At the same time, there are a number of parties related to these plans that provide the functional and logistical support that make these plans work and deliver the promised benefits. The attorney charged with representing the plan and its various related parties, therefore, must be clear on who in fact is the true client.

The starting point for analyzing attorney-client privilege issues is to understand that the privilege belongs to the client'and only the client'not the attorney. In the employee benefit plan context, this means two key things:

• First, it is important to understand who the client is. As discussed below, the client may be the employee benefit plan, the plan sponsor, or the plan fiduciary (among others). The failure to clearly identify the client could have significant ramifications in terms of whether communications that are intended to be privileged from third parties are in fact privileged.
• Second, a client can lose the privilege by allowing non-clients to participate in the communications that otherwise would be privileged (e.g., by permitting other non-clients "in the room" to hear that communication).

The Potential Clients

Three common potential clients in the context of employee benefit plans are (1) the plan itself, (2) the sponsor of the plan and (3) fiduciaries of the plan.

Employee Benefit Plans

An employee benefit plan refers to an employee welfare benefit plan or an employee pension benefit plan, or a plan that is a combination of both. The plan is a separate and distinct legal entity that may sue or be sued as an entity. ERISA ' 502(d) ( 29 U.S.C. ' 1132(d)). That said, a plan as such does not transmit or receive communications other than through the parties who establish, manage, or administer the plan.

Plan Sponsors

The plan sponsor is typically the employer or employee organization (i.e., a union) that establishes the plan. Sponsors engage in settlor (as opposed to fiduciary) functions and are ultimately responsible for the plan's design decisions. When communicating with plan sponsors that operate through corporate entities, it is important to make sure that the Upjohn test (or state variation thereof) is satisfied. As provided for by the U.S. Supreme Court in Upjohn Co., the attorney-client privilege applies to communications between a company employee and the attorney if all of the following are true:

• The communication involves information necessary for the attorney to provide legal advice to the company.
• The communication and information relate to matters within the employee's scope of employment.
• The employee making the communication was aware that the information was being shared with the attorney in order to provide the organization with legal advice.
• The communication was kept confidential and not disseminated beyond employees who, considering the corporate structure, need to know its contents.

449 U.S. at 383; see also e.g., Fletcher v. ABM Bldg. Value, 775 F. App'x 8, 14 (2d Cir. 2019); In re Allen, 106 F.3d 582, 603 (4th Cir. 1997); United States v. Rowe, 96 F.3d 1294, 1297 (9th Cir. 1996). Importantly, unless agreed otherwise, a lawyer representing an organization represents the entity, not the employees or managers within that organization with whom the attorney might otherwise communicate.

In multiemployer plans, which cover employees represented by a union and involve more than one employer, the union and the employers are generally viewed as co-sponsors of the plan. For this...