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Today we're discussing a recent Fourth Circuit Court of Appeals breach of fiduciary duty appeal that's a valuable lesson in contradictory clichés.
On the plaintiff's side, we have Plasterers' Local Union Number 96 (Plasterers), a trade union that subscribes to the "don't put all your eggs in one basket" school of thought.
On the defendant's side, we have former trustees of the Plasterers' pension plan, who believe that one is "better safe than sorry."
The Plasterers' Plan is a multiemployer pension plan subject to the provisions of Employee Retirement Income Security Act (ERISA) and established for the benefit of union members. A Board of Trustees administers the Plan and is comprised of union-appointed and employer-appointed members. All members of the Board are fiduciaries
After a predecessor pension plan sustained substantial financial losses in the '70s and '80s, the Board implemented the current Plan in January 1987. The Board's primary objective was to avoid further losses to the Plan's assets. Toward that end, the Board invested exclusively in certificates of deposit (CDs) and Treasury bills, which they considered a guaranteed profit strategy.
The Plasterers were unhappy with the Board's strategy and replaced the Board between 2004 and 2005. The current Board filed a lawsuit alleging that the Board's investment strategy was a breach of fiduciary duty.
So which cliché is the safer legal bet to avoid a breach of fiduciary duty judgment? According to the district court, it's eggs in the basket for the win. The district court found that the former Board breached its duty to investigate investment options and to diversify investments, and awarded $432,986.70 in damages.
The Fourth Circuit Court of Appeals, however, disagreed.
ERISA requires an independent finding of causation of loss to trigger liability for a breach of fiduciary duty, but the district court failed to analyze whether the purported losses in fact resulted from a breach. The district court's finding that the former trustees breached their fiduciary duties to investigate and diversify did not establish that the actual investments were imprudent, and liability can only attach if, in fact, that is the case.
This decision does not mean that the former trustees are in the clear. In remanding the case, the Fourth Circuit Court of Appeals noted that the former trustees could be liable for damages for breach of fiduciary duty if the district court first determined that the former trustees' investments were imprudent.