Signature Authority Can Trigger ERISA Fiduciary Responsibility

One of the most sensitive — and often misunderstood — aspects of being an executive of a company with a retirement plan is knowing when senior leaders are fiduciaries for the plan. A recent federal case added some clarity when it determined that a chief executive with signature authority over the company’s finances was indeed a fiduciary.

In Perez v. Geopharma, decided on July 25, 2014, Geopharma’s CEO, Mihir Taneja, brought a motion to dismiss an ERISA breach-of-fiduciary-duty claim under the company’s health and welfare plan brought against him by the U.S. Department of Labor. In its suit, DOL alleged that because Taneja had signature authority on Geopharma’s bank accounts ­— which included the plan’s participant contributions — he was a plan fiduciary.

The claim arose from findings that the company:

1. withheld employee premium contributions over a two-month and 10-month period in 2009 and 2010, respectively;
2. failed to segregate the contributions from company assets as soon reasonably possible; and
3. failed to use the funds to pay claims.

DOL alleged that the company also failed to segregate COBRA contributions from general assets and to use the funds to pay claims. (See August 2014 story.)

DOL sought to hold Taneja, the company and two other company officers jointly liable for fiduciary breaches under ERISA including:

1. participating knowingly in an act of another fiduciary, knowing the act was a breach, in violation of 29 U.S.C. 1105(a)(1);
2. failing to monitor or supervise another fiduciary and thereby enabling a breach in violation of 29 U.S.C. 1105(a)(2); or
3. having knowledge of a breach by another fiduciary and failing to make reasonable efforts under the circumstances to remedy the breach in violation of 29 U.S.C. 1105(a)(3).

DOL argued that, as CEO, director, secretary and signatory to the company’s bank accounts, Taneja had a fiduciary duty to monitor the plan’s other fiduciaries, as well as the company’s management and administration of the plan.

No Proof of Function

Taneja countered that he was not a plan fiduciary because there was no proof that he performed any function or exercised any authority related to the “particular activity” of the payment of employee premium contributions.

Further, the fact that he had general signature authority over the company’s bank accounts was not enough to trigger ERISA’s fiduciary responsibilities, as this would make every company officer an ERISA fiduciary, he said. Finally, Taneja argued that he could only become a plan fiduciary if he were named a fiduciary under the plan or exercised discretionary control or authority over the plan or the management of its assets.

In denying the motion, the court held that Taneja’s signature authority made him a plan fiduciary because, among other things, ERISA provides that a person can become a plan fiduciary by exercising any authority or control over the management or disposition of plan assets, even without discretion. The court declined to decide whether discretion was an ERISA fiduciary requirement at this stage, but noted that at least one Circuit (the 11th) has suggested that discretion is a necessary prerequisite for ERISA fiduciary status.

Lesson Learned

Although the ERISA discretion requirement is still in limbo, CEOs and other company officers responsible for ERISA-governed plans who do not want to be plan fiduciaries should consider segregating plan assets and having only plan fiduciaries serve as signatories on the plan’s bank accounts to avoid potential fiduciary liability under ERISA.

Associate Marsha Clarke focuses her practice on a variety of benefits and compensation matters, including retirement plans and health and welfare plans. She advises clients on issues regarding plan design and administration, service provider contracts, compliance reviews and reporting requirements. Sheldon H. Smith, of counsel at the firm, advises clients on ERISA, executive compensation, and fiduciary duties. Mr. Smith represents public and private companies and governmental organizations in assisting them with employee benefit matters. He has crafted a number of “state of the art” types of qualified and non-qualified retirement plans with a focus on saving taxes and providing effective tools for productiv