ESOP Director Training Certificate  
 

ESOP Director Training and Certificate

Comprehensive Curriculum developed by trusted industry leaders

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Applicable
Our ESOP Director Training Program is designed for members of the board of directors and their internal trustees, who have a higher level of fiduciary responsibility for the operation of their company. This level of responsibility is much higher than a basic fiduciary, because directors select and appoint both basic fiduciaries and sometimes the Trustees.

Wide-ranging
While other Director training programs address investment practices, DirectorsMarketplace’s ESOP Director Training Program includes content related to fiduciary duties, company and plan governance, understanding valuations, Budgets and Forecasts, mergers and acquisitions, and family systems best practices. We also review board processes, roles of the board leaders, and issues that can cause claims against the board.

Flexible
Our online approach allows the user to study at their own pace. All of our lessons and tests are available exclusively online, so getting access is much easier and flexible.

Earning the Certificate

Successful completion of or THREE modules of the program, including the Basic Fiduciary Level, will result in the awarding of DirectorsMarketplace.org's ESOP Director Training certificate. Continuing education credits are required, and are also available through ours or other groups programs. We require the completion of the following three education modules and pass the exam to receive the certificate:

  1. ERISA's Vision of the Fiduciary Role & Decision-Making Framework
  2. Understanding the various roles of each advisor, along with Fiduciary Communications with Participants
  3. The Role of Directors as they address company decisions relating to a number of scenarios.

Each module consists of ERISA and Fiduciary content followed by an online test. The process is designed so the user can view the program as many times as necessary before taking the test. After registering, the user will have up to THREE (3) months to complete the program.





ESOP Fiduciary Education Curriculum

DirectorsMarketplace.org's Fiduciary Training Program is designed for all ESOP fiduciaries. We have broken down the body of Knowledge into 3 separate, but progressive levels. The first level is the designed for members of the ESOP Fiduciary Committee. The second level is for members of an ESOP Company's Board of Directors. The third and most demanding level of our fiduciary body of knowledge is designed for Internal Trustees. The Director and Internal Trustee levels must pass the prior level's exam before advancing to the next level.

The basic ESOP Fiduciary Course is composed of TWO modules to educate the candidate with the ERISA governance requirements:

  • Module 1 : ESOP Fiduciary Basics including ERISA's Vision of the Fiduciary Role, who are the fiduciaries and their roles and understanding the roles of service providers.
  • Module 2 : Advanced ESOP Fiduciary Topics including Communication with Beneficiaries, roles of fiduciary insurance, ESOP counsel and compliance issues.

For the ESOP Director Course's body of knowledge, our course advances the candidate's understanding of their role in an ESOP company and how boards work. There are three additional modules to pass:

  • Module 1 : ESOP Director's Governance Basics, including Corporate Governance Systems, C vs. S Corp, the Valuation Process, M&A Process, Company Stock issues
  • Module 2 : Intermediate Governance Topics, including committee charters, Role of the Chair, reading a financial report, Risk Management, operating and liquidity ratios
  • Module 3 : Advanced ESOP Director Topics includes, compensation, unsolicited offers, minority vs. majority control issues, ESOP culture and prohibited transactions.

For the ESOP Internal Trustee Course's body of knowledge, we advance an internal trustee with their roles and responsibilities with complex issues, as well provide them with a Trustee's check list. There are three additional modules to pass, for a total of 8 modules, plus over 400 test questions:

  • Module 1: ESOP Internal Trustee's Governance and Fiduciary Roles and Responsibilities
  • Module 2: ESOP Intermediate Module covering more advanced topics and issues
  • Module 3: Advanced Internal Trustee Topics involving complex transactions and issues.

Each module is self-contained and can be taken independently. At the conclusion of each module, you must take a multiple question test to earn credit to receive your certification. You may take each module multiple times. All tests are pass-fail, and you must complete all four modules to earn your certification.

The curriculum has been developed by some of the BEST ESOP advisors in the United States. The authors are also the faculty for continuing education (Click here to view our faculty), and can also be found as advisors at our sister website www.esopmarketplace.com/advisors.

Directorsmarketplace.org invited fiduciary and financial consultants, as well as nationally recognized ESOP, Governance, ERISA and employee benefit attorneys. This program is not intended as legal advice nor does it shield a trained fiduciary from following industry-accepted rules for conducting due diligence or other practices of managing their ESOP Company and plan. Outside consultants and attorneys play an important role in managing your ESOP plan and provide valuable independent opinion in helping fiduciaries mitigate and manage their risks.

In this program you will learn:

  • Who is a fiduciary, director and trustee and why?
  • Why is it not a great idea to have a member of senior management serve as a named fiduciary to the plan or wear multiple fiduciary hats?
  • How do you select and monitor consultants, attorneys, record-keepers, and outside investment or financial consultants?
  • What and when do you need to communicate to your employees and participants?
  • When and how do you conduct a plan review?
  • What are the roles of the board of directors, board committees and their chairs?
  • What are the roles of an Internal Trustee, ESOP Director and basic Fiduciary?
  • What are the key activities a trustee or Director must do as an ESOP fiduciary?
  • What should a Director or Internal Trustee know to perform their fiduciary duties?
  • Where do you find the answers to your fiduciary questions?
  • What are some of the ERISA provisions that cause personal fiduciary liabilities?
  • What are some of the compliance issues that can cause fiduciary liability?
  • What are the ways to mitigate personal liability as a fiduciary?
  • What are some of the board dynamics that typically surface for new or seasoned boards?
  • What are some of the best ways ESOP boards and internal trustees solve complex issues?
  • What are the governance/fiduciary duties ERISA requires for directors and trustees?
Program Format

Directorsmarketplace.org's ESOP Fiduciary Training Program is a self-study, online certification program.  We have broken down the body of Knowledge into 3 separate, but progressive levels. The first level is the designed for members of the ESOP Fiduciary Committee. The second level is for members of an ESOP Company's Board of Directors. The third and most demanding level of our fiduciary body of knowledge is designed for Internal Trustees.

Our approach is for each candidate to determine which level of knowledge they want to study and be tested on. Once the candidate has selected the desired level, they register and pay for access to the study modules and exam. We have broken down the huge body of knowledge into separate modules to help the candidate absorb the content in order to pass the module's exam.

Once registered, attendees can log on from anyplace, at any time. Registered candidates have 91 days from the initial sign on date, to complete the program and be fully tested. Each module is self-contained and can be taken independently. At the conclusion of each module, a multiple question test follows, to earn credit to receive your certification. Candidates may take each module multiple times. All tests are pass-fail, and candidates must complete all four modules to earn their certification.

Once the candidate successfully completes the study program and passes the modules' exams, we will award a certificate of achievement that will be tracked by our membership system for future verification. The DOL requires fiduciaries to maintain their continuing education, and document those educational sessions for future reference. We require a certificate holder to annually retake the test as we update the lessons and exams for new or changing laws.

Going forward, certificate holders will be invited to continuing education programs at our regional and national educational events to maintain their certificate. At our regional continuing educational events, each level will have their own educational track so that companies can send their fiduciaries of all levels and complete their minimum requirements for continued certification.

Going forward, certificate holders will be invited to continuing education programs at our regional and national educational events to maintain their certificate. At our regional continuing educational events, each level will have their own educational track so that companies can send their fiduciaries of all levels and complete their minimum requirements for continued certification.


Click Here to read Certificate Holder’s Agreement (PDF)

Price
DirectorsMarketplace.org is a membership organization to help corporate governance in closely held, Family Owned, and ESOP companies. Our pricing model is as follows, using Paypal:

Norwich University CEU Credits: $50 for each complete module

ESOP Basic Fiduciary Training and Exam: First year: $395; Subsequent Years $195

ESOP Director Training and Exam: First year: $495; Subsequent Years $195, DirectorsMarketplace members for subsequent years FREE

ESOP Internal Trustee Training and Exam: First year: $595; Subsequent Years $195, DirectorsMarketplace members for subsequent years FREE

For Family Owned Businesses:

Family Business Fiduciary Training and Exam: First year: $395; Subsequent Years $195, DirectorsMarketplace members for subsequent years FREE

Family Business Director Training and Exam: First year: $495; Subsequent Years $195, DirectorsMarketplace members for subsequent years FREE

Family Trustee Training and Exam: First year: $595; Subsequent Years $195, DirectorsMarketplace members for subsequent years FREE

FAQ
Do I need to be certified to be a fiduciary?

No, you do not need to take a certification program; however, recent ESOP plan audits have asked for fiduciary and director training documentation. DirectorsMarketplace.org’s Fiduciary, Director and/or Internal Trustee Training Program may offer you another layer of insulation when regulators or litigators question how you manage your plan, and what training and continuing education programs your fiduciaries have attended or pursued.

Will this program ensure compliance with ERISA, IRS/Tax and other Laws?

No. As an ESOP fiduciary, you are responsible for your actions and decisions relating to your plan. You cannot delegate, release, or assign that responsibility to anyone else.

Can't I simply hire or outsource some or all of my responsibilities as a fiduciary?

No. Once you are designated a fiduciary, you cannot authorize or appoint someone else to take your responsibility.

Doesn't fiduciary or directors & officers (D&O) liability insurance protect me?

Fiduciary insurance is restrictive and limited in its scope and does not protect the fiduciary 100% in all matters. Fiduciaries and Directors may need to demonstrate they are following the plan document, managing the plan accordingly, and adhering to the recognized standards of fiduciary duties and acceptable process and standards.

How will DirectorsMarketplace.org’s training help me with my fiduciary duties?

DirectorsMarketplace.org’s ESOP Fiduciary Training Program provides a wide-ranging overview for many of the critical areas a fiduciary typically deals with: duties of an ESOP or Family Business fiduciary, governance, Communicating with Beneficiaries and or shareholders, Trust or plan documents, and monitoring outside service providers.

Can I get continuing education credit?

Yes. By taking this program you will earn Continuing Education Units, which may fulfill ongoing education requirements for professional designations. However, our CEU’s may not be recognized by other certifying bodies at this time.

Will there be additional DirectorsMarketplace.org Training Program modules available to take in the future?

Yes. First of all, we expect to annually revise the current exam. Secondly, we plan on launching further exams for other governing issues, including Committees.

How can I learn more?

You can click the "Live Chat" tab to chat with us. Or, you can call us at 860-232-9858. Or you can email us at support@directorsmarketplace.org.
DOL Requests Proof of Fiduciary Training

Recently, ESOP plan sponsors have learned the DOL is now asking for verification that the ESOP Company's Fiduciaries, ie. the Fiduciary Committee, Directors and Internal Trustees, have received fiduciary training over the past year. The DOL has required training as part of its legal settlements, meaning the fiduciaries are required to identify such programs, subject to the Department's approval on a facts and circumstances basis. One approach to meeting this requirement is to invite an ERISA Attorney for a training class. Our approach is to avoid the challenges of finding the budget and the staff time to schedule an onsite training and testing program. We designed our process as an internet based, fiduciary training program that provides a certificate showing that the individual studied the program and passed a test. Our authors and faculty are well known ESOP advisors and know what content the DOL seeks in documentation.

DirectorsMarketplace.org has broken down the modules into three progressive fiduciary groups: 1) Members of a Fiduciary Committee, 2) Members of the board of directors, and 3) the internal trustees. In order for the internal trustee to meet our standards of the body of knowledge, they must be trained and must pass the exams of the ESOP Fiduciary and ESOP Director modules before being trained and tested on the Trustee module. ESOP Directors must pass the Fiduciary modules before taking their Director exam. The directors have the power to appoint fiduciaries, including the trustee. We consider the internal trustee(s) as the highest level of governance in an ESOP company because they have the responsibility of setting the company's stock valuation price, they vote to elect board members, and they are responsible for ensuring ESOP plan's documentation is properly maintained. While the board of directors is the managing body, the shareholder is the trustee, who elects or appoints the directors.

Once a candidate passes an exam, our process will document their achievement and award them a certificate they can add to the DOL Audit documentation.

Fiduciary Duties: Best Plan Practices to Limit Fiduciary Exposure

John A. Kober, Esq. Gregory K. Brown, Esq.

Sponsor companies, Boards of Directors, plan fiduciaries, and ESOP committee members should begin (or continue) to implement Best Plan Practices to address retirement plan matters. They must remember that they still have liability even if they hire a third party to administer the plan.

Introduction

Retirement plans holding company stock have taken center stage as part of an overall national dialogue. Few days pass by without news of yet another company or fiduciary being sued by its employees.

The lawsuits are typically related to (1) a decrease in the value of the employer stock held by a retirement plan, (2) the elimination of the value of the employer stock as a result of the company reorganizing under the bankruptcy rules, or (3) allegations that the appraisal of employer stock is flawed and the plan paid too much for the stock.

In particular, a number of newspaper and professional journal articles have been written—and will continue to be written—on what the various plan fiduciaries did (or did not do).

As the courts continue to develop this body of law, companies are faced with the uncertainty of:

  1. who are the fiduciaries of their retirement plans (i.e., particularly the duties of those who appoint fiduciaries of those retirement plans and the liability of corporate officers and directors),
  2. the legal standards that will be applied to fiduciaries of retirement plans holding employer stock (i.e., the duties of trustees), and
  3. how to best protect those fiduciaries.

Because of these events, companies have learned—and are being advised about implementing—“good retirement plan governance” ("Best Plan Practices").

Who Is the Fiduciary?

Courts seem to draw a distinction between:

  1. a fiduciary who has knowledge (or possibly access to information) because of his or her position in the employer company (i.e., a fiduciary who is a corporate board member, an officer of the company, or key adviser to the company) about the financial condition of the company, and
  2. a fiduciary that is an independent fiduciary who does not have access to the same information.

Depending on (1) the facts and circumstances of the particular company and (2) who is the plan fiduciary, the fiduciary may not be able to remain inactive as the company stock value decreases.

In determining who is a plan fiduciary, the courts often take a close look at:

  1. who are the designated fiduciaries of the retirement plan,
  2. who are the individuals that influence the investment decisions of the retirement plan or of the plan assets, and
  3. who appoints and monitors the fiduciaries of the retirement plan.

A review of the plan documents and the minutes of the board of directors will usually set forth the "named" or "designated fiduciaries" of the retirement plan. For companies, both public and private, a board-appointed committee typically will be the principal fiduciary for the plan investments, including the investment in employer company stock, under the plan documents.

Other individuals can also become fiduciaries by exercising discretionary authority and control over (1) the management of the retirement plan or (2) the investment of retirement plan assets. In other words, those individuals actually "calling the shots" on the investment of retirement plan assets or on the administration of the retirement plan will be considered fiduciaries—as well as the named trustee and the named committee members.

In addition, an individual or the board of directors who appoints a fiduciary of the retirement plan can also be considered a fiduciary with respect to (1) the act of making such an appointment, (2) the ongoing monitoring of the activities of the fiduciary and (3) the retention or removal of that fiduciary.

A trap for the unwary involves the board of directors simply naming the "company" as the fiduciary of the retirement plans. The question arises as to whether this type of designation makes the members of the board of directors and/or the officers of the employer company fiduciaries of the retirement plans.

There is lack of clarity in determining who may be a fiduciary when the company is named as the "fiduciary." Since there is the prospect for second-guessing by a court, companies implementing Best Plan Practices should specifically designate an individual, group of individuals (i.e., a committee) or an independent fiduciary to serve as the retirement plan fiduciary. That group should have its own written charter describing its duties and manner of action.

Since the board of directors normally has the responsibility to appoint qualified individuals to serve as a fiduciary (and then to monitor the activities of those fiduciaries), it is better for the board to decide who is qualified to make decisions as a retirement plan fiduciary.

Duties of a Fiduciary of a Retirement Plan that Holds Employer Company Stock

Fiduciaries of an employee stock ownership plan (ESOP) continue to struggle with:

  1. the plan document and the statutory mandate to invest all of the assets of the ESOP primarily in employer stock and
  2. the duty to act in the primary interest of the ESOP participants and in a prudent manner (i.e., especially when the employer stock price declines due to (a) a turndown in the economy or (b) an unexpected increase in the ESOP-related repurchase obligation).

It is not entirely clear what the standard of fiduciary care is with respect to the employer stock held in an ESOP. This is an area of the law that is still evolving. The courts continue to establish principles as litigation moves through the legal process.

Perhaps the best current view, and a useful one for fiduciaries trying to come to grips with what they should be doing, derives from a 1995 decision rendered in the Third Circuit in Moench v. Robertson. This case has been followed by the Second, Fifth, Sixth, Seventh and Ninth Circuits.

Moench essentially stands for the proposition that there is a "presumption" that it is prudent for the ESOP fiduciary corporation to invest in and hold employer corporation stock. However, the presumption is a reputable presumption. Accordingly, the ESOP fiduciary may, under certain dire circumstances, be forced to conclude that the employer stock is an imprudent investment.

Therefore, under Moench, an ESOP fiduciary may be able to hold employer stock and not sell any employer stock under circumstances when, for any other type of retirement plan investment, the fiduciary would likely conclude those assets should be sold.

What Should a Fiduciary Do?

Accordingly, many ESOP fiduciaries have implemented a process that documents the fact that they are monitoring: (1) the employer corporation’s stock performance, (2) the business conduct of the employer company, and (3) the financial performance of the employer company. From a Best Plan Practices standpoint, it is important that the ESOP fiduciary (1) document his, her, or its actions and (2) maintain permanent records of his, her, or its deliberations.

Similar to, but different from, a private company, public companies that sponsor an ESOP are also expanding employee diversification rights. This is especially true in situations where an employee directs some or all of his or her salary reduction deferrals into employer stock investments.

Expanding the diversification rights may have the benefit of putting less pressure on the fiduciary of those retirement plans to make a proper decision as to when to buy, sell, or hold the employer corporation stock—by shifting that responsibility to the ESOP participant.

If the ESOP is holding publicly traded stock, it is important that the participant’s decision to invest in employer stock becomes subject to ERISA Section 404(c). ERISA Section 404(c) generally provides that, if a retirement plan permits participants to exercise the investment control over their accounts, no person who is otherwise a fiduciary will be liable for any loss that results from the participant’s decision to invest in employer stock.

Because of recent events and legislation, the trend has been to allow greater employee diversification rights. However, there are potential negatives from the perspective of the employer corporation. For example, the reduction in the number of shares of employer stock held by the retirement plan as a whole may result in the "primarily invested" in employer stock requirement to be violated.

Another area that employers are focusing on as they develop Best Plan Practices involves the ESOP summary plan descriptions. ESOP summary plan descriptions are getting a fresh look in light of the ESOP fiduciary litigation. In particular, disclosures concerning the risk of employer stock, the importance of investment diversification when planning for retirement, and, where applicable, the distribution parts of the disclosures are being expanded.

Following not far behind the expansion of the ESOP summary plan descriptions, many employers are looking hard at hiring an independent fiduciary to manage the retirement plan. This is because there is a presumption (whether it is accurate or not) that inside trustees allegedly know of information that arguably should have been provided to the ESOP participants—or at least failed to give out fully accurate information.

With regard to information dissemination, an inside fiduciary is affected in at least two major ways. First, there is a question as to whether or not those persons have a duty to provide information to ESOP participants so that the participants can act on that information. Second, there is a question as to what a fiduciary should do when he or she possesses nonpublic or confidential information. The principal concern of a plan fiduciary will often be the second concern. Reconciling this situation can be very difficult under the current environment.

Recently, the trend is for courts to hold that a plan fiduciary does not have a duty to disclose any information to a participant if that disclosure would violate federal securities laws. In addition, federal courts have consistently held that fiduciary committee members are not obligated to trade based on the insider information they possessed. However, the answer may turn out to be more complicated if the fiduciary has confidential information gained in a board of directors meeting or an officers meeting.

To avoid the problem of a plan fiduciary who at some point may possess confidential information, many employer companies are appointing outside fiduciaries. These appointments are made because it is difficult to find insider individuals who will not be prone to claims that they were not making prudent decisions.

Best Plan Practices

Given the current environment, employers are implementing Best Plan Practices to address some of the concerns set forth above. Some of the actions being considered by companies are as follows:

  1. Companies are putting together well thought out written retirement plan governance procedures.
    These procedures (a) address the company’s fiduciary obligations that traditionally have not been addressed in the retirement plan documents and (b) adopt, follow, and keep up to date these retirement plan governance procedures (e.g., plan documents, ESOP committee charters, ESOP voting committee charters, ESOP communication charters, statements of QDRO policy, and statements of investment policy).
  2. Companies are concentrating on the type and tone of communications with employees regarding employer stock held in retirement plans. The objective is to ensure that such communications are frequent, objective, and neutral.
  3. Companies are focusing on the manner in which information is conveyed to employees in town hall employee meetings. The objective is to avoid giving or misrepresenting information because of enthusiasm.
    Traditionally, the human resource officer, along with the plan’s recordkeeper, holds employee meetings to discuss voluntary employee investment of their money in the employer stock (with management having no input on the information conveyed).
  4. Companies are becoming more proactive throughout the year to address matters involving the ESOP (e.g., repurchase liability obligation, timing of the valuations and distributions, and voting).
    In addition, individuals on ESOP committees (l) are very proactive in communicating with employees during any period where the employer stock value is falling and (2) documenting the actions being taken by the ESOP committee and plan fiduciary. There is some indication that courts may act more favorably if there is evidence of active fiduciary oversight, even if no action was taken, than if there is no evidence of oversight.
  5. Companies are appointing individuals to serve on retirement plan committees who do not have the knowledge or access to inside information about the employer company’s financial situation and marketplace issues. Such information is information that is not otherwise available to all shareholders. And, employer companies permit the committee to be represented by separate legal counsel (other than the counsel for the employer and counsel for the ESOP).
    This means that the chief executive officer, president, chief financial officer, chairman of the board, and other members of the board of directors do not serve on any fiduciary retirement plan committee (unless an individual’s expertise is essential to the committee’s function).
  6. Companies are:
    1. appointing individuals to the retirement plan committees and other fiduciaries through specific language in the plan document, as compared to the appointments being the sole responsibility of the board of directors or an officer of the company, and
    2. documenting the qualification of the individuals being appointed to these committees.
  7. Companies are using and appointing independent fiduciaries that are discretionary fiduciaries to take the responsibility for the employer company stock investments held in the retirement plans.
    A recurring theme in company stock-related fiduciary litigation is that the fiduciaries failed to act in the sole interest of plan participants in deciding to purchase, sell, vote, tender or retain the employer stock investment in the retirement plan. In other words, there was a "conflict of interest."
    The primary purpose of the independent fiduciary is to ensure unbiased oversight regarding employer stock holdings, provided that:
    1. the independent fiduciary that is selected and appointed is qualified (both in terms of financial resources and being knowledgeable in the area) and
    2. the board of directors or the committee monitors the activities of the independent fiduciary.
    3. Companies are having their Board of Directors meet on a regular, periodic basis, with at least some independent Board members and a committee that monitors the activities of all company ERISA fiduciaries.

    Limitations on Best Plan Practices

    The fact that a third party formally assumes responsibility for fiduciary functions under a plan and acknowledges that it is a plan fiduciary means that it will be liable for its acts or omissions in carrying out its fiduciary responsibilities. It does not mean that the named fiduciary such as the board of directors (or committee thereof) is relieved of liability in connection with the third party’s acts or omissions. A named fiduciary’s responsibility for the acts or omissions of another party is governed by Section 405(c) of ERISA, which provides that a plan may include procedures for the named fiduciary to delegate its fiduciary responsibility to another party by designating it to carry out the named fiduciary’s responsibilities under the plan. If the delegation of fiduciary responsibility to a third party meets certain requirements, the named fiduciary will not be liable for its delegatee’s acts or omissions. However, this relief is subject to three significant limitations:

    First, the delegating fiduciary must ensure that the plan provides for the delegation, and the delegation cannot be broader than the plan permits.

    Second, the named fiduciary will be liable for the third party delegatee’s acts or omissions to the extent the named fiduciary violated ERISA’s prudent man standard of care with respect to: (1) delegating fiduciary responsibility, (2) establishing or implementing the plan’s delegation procedure, or (3) continuing an existing delegation. Thus, a named fiduciary is liable for the acts or omissions of its third-party delegatee unless its actions in connection with the delegation are (a) solely in the interest of the plan’s participants and beneficiaries, (b) for the exclusive purpose of providing benefits under the plan, and (c) prudent under ERISA.

    Third, Section 405(c) relief is not available to the named fiduciary to the extent that it would otherwise be liable for the acts or omissions of its third party delegatee as a co-fiduciary. Section 405(a) governs a fiduciary’s liability for the actions of the plan’s other fiduciaries. It provides that a plan fiduciary can be held liable for a co-fiduciary’s breach of fiduciary responsibility if (i) it knowingly participated in or concealed the breach, (ii) its failure to satisfy the prudent man standard of care enabled the breach, or (iii) it knew or should have known of the co-fiduciary’s breach and did not make reasonable efforts to remedy the breach.

    The truth is that a plan’s in-house or named fiduciaries cannot completely avoid fiduciary responsibility and potential liability under ERISA simply by retaining a third party to manage plan investments or other fiduciary functions, regardless of the terms of its agreement with the third party. Delegating fiduciary responsibility and deciding whether to continue an existing delegation are themselves fiduciary functions subject to ERISA. Not only does this mean that a named fiduciary must satisfy ERISA’s prudence and exclusive benefit requirements when it delegates its fiduciary responsibilities to third parties—it also means that the named fiduciary is responsible for oversight of the third party delegatee’s performance. A named fiduciary’s failure to monitor a third party delegatee’s performance and, if appropriate, terminate the delegation, is a breach of its fiduciary responsibilities and could result in co-fiduciary liability for enabling a fiduciary breach or for failing to try to remedy such a breach when the named fiduciary knew or should have known that a breach had occurred.

    Summary and Conclusion

    In conclusion, it is important to be aware that case law continues to evolve in this area. In addition, companies and their boards of directors, plan fiduciaries, and ESOP committee members should begin (or continue) to implement “best practices” to address those retirement plan matters, appreciating that there is no “silver bullet” that completely eliminates fiduciary exposure.

    John A. Kober, Esq., is a partner in the Dallas, Texas, office of the law firm of Morgan, Lewis & Bockius LLP, and co-head of the firm’s national ESOP Practice. He can be reached at (214) 466-4105 or jkober@morganlewis.com.

    Gregory K. Brown, Esq., is a partner in the Chicago, Illinois office of the law firm of Katten Muchin Rosenman LLP and leads its ESOP Practice. He can be reached at 312) 902-5404 or gregory.brown@kattenlaw.com.