INVESTMENT MANAGER OVERVIEW
Trustee Personal Liability
ERISA has imposed significant fiduciary responsibilities on corporate and Taft-Hartley pension fund trustees with respect to the management of their pension plan assets. In fact, in certain circumstances, trustees can be held personally liable for losses incurred on investments made by their pension plan.
Even a profitable investment can result in personal liability if the trustees violate any of the many requirements imposed by ERISA in selecting or managing the investment.
This risk of personal liability under ERISA can be eliminated by hiring an "investment manager" - as defined in ERISA §3(38) - so long as the trustees act prudently in the appointment and retention of the investment manager.
If the investment manager has been prudently engaged and the responsibility for making investments has been properly delegated, trustees will not be responsible for the acts or omissions of the investment manager or be under any obligation to invest or manage any assets of the pension plan that the investment manager is responsible for investing.
A key component of this protection from liability is the effective delegation of investment authority. Such delegation is generally accomplished through a discretionary account structure. Trustees who elect to operate under a non-discretionary account basis are not absolved from liability under ERISA as a fiduciary because they have not delegated their management responsibilities to the investment manager in the manner necessary to limit their liability. In addition to granting discretionary authority to the investment manager, the following procedural guidelines outlined in ERISA should be followed by the trustees to further minimize their exposure to personal liability:
The trustees should:
- develop appropriate investment guidelines for the investment manager; and
- exercise regular and diligent oversight over the investment manager's activities once management has been delegated.