On June 25, 1975, the Department of Labor issued an interpretive
bulletin, ERISA IB 75-5, containing questions and answers relating to
certain aspects of the recently enacted Employee Retirement Income
Security Act of 1974 (the ``Act'').
Pending the issuance of regulations or other guidelines, persons may
rely on the answers to these questions in order to resolve the issues
that are specifically considered. No inferences should be drawn
regarding issues not raised which may be suggested by a particular
question and answer or as to why certain questions, and not others, are
included. Furthermore, in applying the questions and answers, the effect
of subsequent legislation, regulations, court decisions, and
interpretative bulletins must be considered. To the extent that plans
utilize or rely on these answers and the requirements of regulations
subsequently adopted vary from the answers relied on, such plans may
have to be amended.
An index of the questions and answers, relating them to the
appropriate sections of the Act, is also provided.
Index
key to question prefixes
D--Refers to Definitions.
FR--Refers to Fiduciary Responsibility.
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Section No. Question No.
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3(21)..................................... D-1.
3(38)..................................... FR-6, FR-7.
402(a).................................... FR-1, FR-2, FR-3.
402(b)(1)................................. FR-4, FR-5.
402(c)(3)................................. FR-6, FR-7.
404(a).................................... FR-10.
405(a)(3)................................. FR-10.
405(b)(1)(A).............................. FR-10.
406(a).................................... FR-9.
409(a).................................... FR-10.
412(a).................................... FR-8, FR-9.
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D-1 Q: Is an attorney, accountant, actuary or consultant who renders
legal, accounting, actuarial or consulting services to an employee
benefit plan (other than an investment adviser to the plan) a fiduciary
to the plan solely by virtue of the rendering of such services, absent a
showing that such consultant (a) exercises discretionary authority or
discretionary control respecting the management of the plan, (b)
exercises authority or control respecting management or disposition of
the plan's assets, (c) renders investment advice for a fee, direct or
indirect, with respect to the assets of the plan, or has any authority
or responsibility to do so, or (d) has any discretionary authority or
discretionary responsibility in the administration of the plan?
A: No. However, while attorneys, accountants, actuaries and
consultants performing their usual professional functions will
ordinarily not be considered fiduciaries, if the factual situation in a
particular case falls within one of the categories described in clauses
(a) through (d) of this question, such persons would be considered to be
fiduciaries within the meaning of section 3(21) of the Act. The Internal
Revenue Service notes that such persons would also be considered to be
fiduciaries within the meaning of section 4975(e)(3) of the Internal
Revenue Code of 1954.
FR-1 Q: If an instrument establishing an employee benefit plan
provides that the plan committee shall control and manage the operation
and administration of the plan and specifies who shall constitute the
plan committee (either by position or by naming individuals to the
committee), does such provision adequately satisfy the requirement in
section 402(a) that a ``named fiduciary'' be provided for in a plan
instrument?
A: Yes. While the better practice would be to state explicitly that
the plan committee is the ``named fiduciary'' for purposes of the Act,
clear identification of one or more persons, by name or title, combined
with a statement that such person or persons have authority to control
and manage the operation and administration of the plan, satisfies the
``named fiduciary'' requirement of section 402(a). The purpose of this
requirement is to enable employees and other interested persons to
ascertain who is responsible for operating the plan. The instrument in
the above example, which provides that ``the plan committee shall
control and manage the operation and administration of the plan'', and
specifies, by name or position, who shall constitute the committee,
fulfills this requirement.
FR-2 Q: In a union negotiated employee benefit plan, the instrument
establishing the plan provides that a joint board on which employees and
employers are equally represented shall control and manage the operation
and administration of the plan. Does this provision adequately satisfy
the requirement in section 402(a) that a ``named fiduciary'' be provided
for in a plan instrument?
A: Yes, for the reasons stated in response to question FR-1. The
joint board is clearly identified as the entity which has authority to
control and manage the operation and administration of the plan, and the
persons designated to be members of such joint board would be named
fiduciaries under section 402(a).
FR-3 Q: May an employee benefit plan covering employees of a
corporation designate the corporation as the ``named fiduciary'' for
purposes of section 402(a)(1) of the Act?
A: Yes, it may. Section 402(a)(2) of the Act states that a ``named
fiduciary'' is a fiduciary either named in the plan instrument or
designated according to a procedure set forth in the plan instrument. A
fiduciary is a ``person'' falling within the definition of fiduciary set
forth in section 3(21)(A) of the Act. A ``person'' may be a corporation
under the definition of person contained in section 3(9) of the Act.
While such designation satisfies the requirement of enabling employees
and other interested persons to ascertain the person or persons
responsible for operating the plan, a plan instrument which designates a
corporation as ``named fiduciary'' should provide for designation by the
corporation of specified individuals or other persons to carry out
specified fiduciary responsibilities under the plan, in accordance with
section 405(c)(1)(B) of the Act.
FR-4 Q: A defined benefit pension plan's procedure for establishing
and carrying out a funding policy provides that the plan's trustees
shall, at a meeting duly called for the purpose, establish a funding
policy and method which satisfies the requirements of part 3 of title I
of the Act, and shall meet annually at a stated time of the year to
review such funding policy and method. It further provides that all
actions taken with respect to such funding policy and method and the
reasons therefor shall be recorded in the minutes of the trustees'
meetings. Does this procedure comply with section 402(b)(1) of the Act?
A: Yes. The above procedure specifies who is to establish the
funding policy and method for the plan, and provides for a written
record of the actions taken with respect to such funding policy and
method, including the reasons for such actions. The purpose of the
funding policy requirement set forth in section 402(b)(1) is to enable
plan participants and beneficiaries to ascertain that the plan has a
funding policy that meets the requirements of part 3 of title I of the
Act. The procedure set forth above meets that requirement.
FR-5 Q: Must a welfare plan in which the benefits are paid out of
the general assets of the employer have a procedure for establishing and
carrying out a funding policy set forth in the plan instrument?
A: No. Section 402(b)(1) requires that the plan provide for such a
procedure ``consistent with the objectives of the plan'' and
requirements of title I of the Act. In situations in which a plan is
unfunded and title I of the Act does not require the plan to be funded,
there is no need to provide for such a procedure. If the welfare plan
were funded, a procedure consistent with the objectives of the plan
would have to be established.
FR-6 Q: May an investment adviser which is neither a bank nor an
insurance company, and which is not registered under the Investment
Advisers Act of 1940 in reliance upon an exemption from registration
provided in that Act, be appointed an investment manager under section
402(c)(3) of the Act?
A: No. The only persons who may be appointed an investment manager
under section 402(c)(3) of the Act are persons who meet the requirements
of section 3(38) of the Act--namely, banks (as defined in the Investment
Advisers Act of 1940), insurance companies qualified under the laws of
more than one state to manage, acquire and dispose of plan assets, or
persons registered as investment advisers under the Investment Advisers
Act of 1940.
FR-7 Q: May an investment adviser that has a registration
application pending under the Investment Advisers Act of 1940 function
as an investment manager under the Act prior to the effective date of
registration under the Investment Advisers Act?
A: No, for the reasons stated in the answer to FR-6 above.
FR-8 Q: Under the temporary bonding regulation set forth in 29 CFR
2550.412-1, must a person who renders investment advice to a plan for a
fee or other compensation, direct or indirect, but who does not exercise
or have the right to exercise discretionary authority with respect to
the assets of the plan, be bonded solely by reason of the provision of
such investment advice?
A: No. A person who renders investment advice, but who does not
exercise or have the right to exercise discretionary authority with
respect to plan assets, is not required to be bonded solely by reason of
the provision of such investment advice. Such a person is not considered
to be ``handling'' funds within the meaning of the temporary bonding
regulation set forth in 29 CFR 2550.412-1, which incorporates by
reference 29 CFR 464.7. For purposes of the temporary bonding
regulation, only those fiduciaries who handle funds must be bonded. If,
in addition to the rendering of investment advice, such person performs
any additional function which constitutes the handling of plan funds
under 29 CFR 464.7, the person would have to be bonded.
FR-9 Q: May an employee benefit plan purchase a bond covering plan
officials?
A: Yes. The bonding requirement, which applies, with certain
exceptions, to every plan official under section 412(a) of the Act, is
for the protection of the plan and does not benefit any plan official or
relieve any plan official of any obligation to the plan. The purchase of
such bond by a plan will not, therefore, be considered to be in
contravention of sections 406(a) or (b) of the Act.
FR-10 Q: An employee benefit plan is considering the construction of
a building to house the administration of the plan. One trustee has
proposed that the building be constructed on a cost plus basis by a
particular contractor without competitive bidding. When the trustee was
questioned by another trustee as to the basis of choice of the
contractor, the impact of the building on the plan's administrative
costs, whether a cost plus contract would yield a better price to the
plan than a fixed price basis, and why a negotiated contract would be
better than letting the contract for competitive bidding, no
satisfactory answers were provided. Several of the trustees have argued
that letting such a contract would be a violation of their general
fiduciary responsibilities. Despite their arguments, a majority of the
trustees appear to be ready to vote to construct the building as
proposed. What should the minority trustees do to protect themselves
from liability under section 409(a) of the Act and section 405(b)(1)(A)
of the Act?
A: Here, where a majority of trustees appear ready to take action
which would clearly be contrary to the prudence requirement of section
404(a)(1)(B) of the Act, it is incumbent on the minority trustees to
take all reasonable and legal steps to prevent the action. Such steps
might include preparations to obtain an injunction from a Federal
District court under section 502(a)(3) of the Act, to notify the Labor
Department, or to publicize the vote if the decision is to proceed as
proposed. If, having taken all reasonable and legal steps to prevent the
imprudent action, the minority trustees have not succeeded, they will
not incur liability for the action of the majority. Mere resignation,
however, without taking steps to prevent the imprudent action, will not
suffice to avoid liability for the minority trustees once they have
knowledge that the imprudent action is under consideration.
More generally, trustees should take great care to document
adequately all meetings where actions are taken with respect to
management and control of fplan assets. Written minutes of all actions
taken should be kept describing the action taken, and stating how each
trustee voted on each matter. If, as in the case above, trustees object
to a proposed action on the grounds of possible violation of the
fiduciary responsibility provisions of the Act, the trustees so
objecting should insist that their objections and the responses to such
objections be included in the record of the meeting. It should be noted
that, where a trustee believes that a cotrustee has already committed a
breach, resignation by the trustee as a protest against such breach will
not generally be considered sufficient to discharge the trustee's
positive duty under section 405(a)(3) to make reasonable efforts under
the circumstances to remedy the breach.
[40 FR 31599, July 28, 1975. Redesignated at 41 FR 1906, Jan. 13, 1976]
