DOL Provides Guidance on Fiduciary Duties of Directed Trustees

The Department of Labor (the "DOL") recently issued Field Assistance Bulletin 2004-03 (the "Bulletin") under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Bulletin provides the DOL's views on the responsibilities of directed trustees under ERISA, particularly with respect to directions involving employer securities. The Bulletin states that a directed trustee, by definition, will always be a "fiduciary" under ERISA, but that the duties of a directed trustee under Section 403(a)(1) of ERISA are "significantly narrower" than the duties generally ascribed to a discretionary trustee. Under ERISA, a directed trustee may follow the "proper" directions of a named fiduciary, and a direction is "proper" only if the direction is "made in accordance with the terms of the plan" and "not contrary to [ERISA]." As to the first component, the Bulletin states that a directed trustee must make a determination whether the direction is inconsistent with the terms of the plan. In this regard, the Bulletin states that a directed trustee has a duty to request and review all the documents and instruments governing the plan that are relevant to its duties as directed trustee, which may include, e.g., the plan's investment policy statement. The Bulletin indicates that it is the view of the DOL that a direction is consistent with the terms of a plan if the plan documents do not prohibit the direction. According to the Bulletin, if the plan documents are ambiguous, the directed trustee should obtain a clarification of the plan terms from the plan fiduciary that is responsible for interpreting such terms, and that the directed trustee may rely upon such determination.

As to the second component, the Bulletin states that a directed trustee may not follow a direction that the directed trustee "knows or should know" is contrary to ERISA. In this regard, the Bulletin states that a directed trustee must follow processes that are designed to avoid non-exempt prohibited transactions, and that a directed trustee may satisfy this obligation by obtaining appropriate written representations from the directing fiduciary that the plan maintains and follows procedures for identifying prohibited transactions and, if prohibited, identifying the individual or class exemption applicable to the transaction. The Bulletin further states that a directed trustee may rely on the representations of the directing fiduciary unless the directed trustee "knows"...