Trustees Must Be Able to Demonstrate That They Follow A Prudent Process

By 2020-01-12February 9th, 2021No Comments

In the article, “ERISA LITIGATION DEFENDANTS TAKE NOTE: BURDENS OF PROOF ARE BECOMING MORE WEIGHTY,” by Seyfarth ShawLLPthe authors make the point that trustees and fund sponsors need to be able to demonstrate that they follow a prudent process in the management of their ERISA assets:

“Many parties to ERISA litigation and arbitration pay lip service to the burden of proof, put on their respective cases and leave it to the trier of fact to decide which side deserves the victory.   Burdens of proof have become increasingly important, however, as procedural and substantive issues become more complex, and judges often have less time to deal with the subtleties in ERISA litigation. Burdens of proof thus demand more attention.”

Failure to meet this requirement has resulted in multimillion-dollar fines – the largest being that of Nationwide in the amount of $140 million.

Over the last decade and a half, Fi360 and the Centre for Fiduciary Excellence have been refining the 21 Practices and 82 Criteria that make up the Fi360 Prudent Practices®. The practices cover the organization of proper documents, designing proper structure to formalize the prudent process within an organization, how best to implement that process and monitor the prudent process on an ongoing basis.

The ruling in the landmark case Tibble v. Edison International, the US Supreme Court wrote that fiduciaries must monitor their investments on an ongoing basis. The Fi360 Prudent Practices® provide a comprehensive resource for meeting the Supreme Court’s requirements.

Being in compliance with the Prudent Practices® greatly reduces the fiduciary liability of the organization, trustees, and board members. Being in compliance is only half the battle; fiduciaries must be able to show how, when, and why decisions were taken. As the authors state…” Burdens of proof thus demand more attention.