From time to time I get questions from clients about how long they should maintain plan records. Lately these questions have been more narrowly focused. The question now is how long should fiduciary records be kept.
I suppose interest in the question (and all things fiduciary) has been stirred by the litigation in recent years over fiduciary responsibilities. Factor in the considerable debate surrounding DOL’s conflict of interest rule - now in a state of flux with DOL’s reconsideration of the rule - that greatly heightened awareness of fiduciary responsibilities and you get plan sponsors concerned about their liabilities and looking for ways to protect themselves.
What is a fiduciary record? It can mean just about any record relating to the administration and operation of a plan. But for purposes of this post I define it more narrowly and in the sense that the question of how long records should be kept has been presented to me. So, for my purposes a fiduciary record is any record relating to:
- The formulation of an investment policy or investment decision
- Any record relating to the hiring, retention, or firing of a plan service provider
These records should include, among other things, reports, service provider sales collateral, prospectuses, and committee minutes. In sum, this is all documentation that is considered in any particular fiduciary decision or that documents that consideration.
Why keep records? The short answer is that you want to be in a position to demonstrate that you have met your general fiduciary obligations to your plan. These obligations being the frequently noted ones of acting in the best interests of plan participants and for their exclusive benefit, acting with high standards of fiduciary care, skill, and prudence, and following plan documents.
Under the arbitrary & capricious standard adopted by the courts, plan fiduciaries only have to show a reasoned decision making process --- not that they were right.
Documentation of your efforts in this regard certainly makes a plaintiff’s attorney’s job a bit harder. Keeping good records is a virtuously good thing, especially if it shows thorough analysis, consideration of the alternatives, and consultation with experts (when knowledge is lacking). Let’s get to the question that is theme of this post.
How long should records be kept? That depends on the statue of limitations. If there is no fraud or no concealment, claims can’t be brought on the basis of a violation of ERISA after the earlier of:
- Six years after “the date of the last action which constituted a part of the breach or violation,” or
- “Three years after the earliest date on which the plaintiff had actual knowledge of the breach.”
For some situations the meaning of the language is very clear. An example is a participant whose claim for a larger benefit is denied by the plan administrator. The participant has three years to bring a claim from the date of denial (i.e., the date the participant had actual knowledge of the breach). It’s more complicated when a plan committee makes a decision about plan investments. This is because of the U.S. Supreme Court decision in Tibble v. Edison.
The Court has said that although the statute of limitations for bringing an action against a plan fiduciary for a bad (i.e., imprudent) investment begins on the date of the investment, the limitation period begins anew if at any time during that period the fiduciary should have reviewed its portfolio and replaced the investment.
Example: Participants bring suit in 2017 against plan fiduciaries for imprudent investments made in 2008. Let’s say the fiduciaries provided an investment lineup of costly retail fund as opposed to less costly institutional funds. Although the six-year statute of limitations for the original investment had run in 2014, the participants claim that the plan fiduciaries failed in their duty to monitor the original investment in year subsequent to the investment year. They have made their claim within the statute of limitations period.
It is not difficult to make the argument (and a plaintiff’s attorney surely will) that reviewing and monitoring plan investment portfolios is an annual affair and a best practice. If you accept this premise and do the math, plan fiduciaries are exposed for a significantly long period. And now getting back to our question, this extended period of risk means that for records relating to that original investment it might be wise to preserve them for that period.
Annual Monitoring and Documentation. There is another implication in Tibble for fiduciaries. If the failure to monitor the original investment is a trigger that resets the statute of limitations, it might not be a bad idea to do that monitoring each year looking at
- Share classes
- The reasonableness of fees
- Investment performance and
- Consistency with investment guidelines
If an action is required as a result, it would be taken; if not, there would be documented evidence of reasoned consideration.
Chuck Humphrey is the principal of Law Offices of Charles G. Humphrey and the author of the Fiduciary Responsibility eSource available at erispedia.com. Mr. Humphrey can be reached at firstname.lastname@example.org or at 716-465-7505.