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professional trusteemay vary in accordance with the nature of the planand other facts and circumstances relevant to thechoice of the procedure.See also Liss v. Smith, 2 in which the court stated: “It is bynow well established that the power to appoint Plan Trusteesconfers fiduciary status.”What Are the Practical Implicationsof This Regulation for the Appointing Entity?The appointing entity:• Should examine the trust agreement to determinewhat its duties are in the appointment of trustees• Should determine what special qualifications, if any,the trustees should have• Needs to establish its expectations and qualificationsfor its appointed trustees• Should meet with newly appointed trustees to preparethem for assuming their responsibilities• Should establish a written policy for reviewing the performanceof its trustees.A 2008 case in the U.S. District Court for the District ofConnecticut is instructive in explaining the legal duties ofsponsors appointing and monitoring trustees. 3The local union sued a local NECA chapter in Connecticutand its executive for breaches of fiduciary duty with respectto the chapter’s appointment of trustees and with respectto the activities of the chapter executive as a trustee.Two benefit plans were involved—the IBEW Local 90 PensionFund and the IBEW Local 90 Benefit Plan.The trust agreement for the Local 90 Benefit Plan requiressix trustees—three appointed by the union and threeappointed by the NECA chapter. The trust agreement alsorequires that each management trustee must be actively employedby a contributing employer. Under the terms of thetrust agreement, each trustee has one vote. If a trustee is absent,the trustee’s vote is distributed among the trustees thatare present on a pro-rata basis. A quorum consisted of onemanagement trustee and one union trustee.The Local 90 Pension Fund trust agreement providessimilar, but not identical, provisions. The pension fund trustagreement provides for six trustees. A quorum consistsof two trustees from each side. Each trustee has one vote.However, if a union trustee is absent, the remaining uniontrustees each have 1½ votes, and if an employer trustee isabsent, the remaining employer trustees each have 1½ votes.In addition, the trust agreement requires that any vacancyon the board of the trustees be filled within 30 days after thevacancy occurs.The NECA chapter, although not defunct, did not operatein accordance with its own bylaws. The officers consisted ofthe chapter executive and a president. The chapter did nothave meetings, and it had not held an election of officers forover eight years. The chapter executive was the only chapter-appointedtrustee that attended all of the meetings. Althoughthe chapter had appointed some trustees other thanthe chapter executive, those trustees rarely, if ever, attendedmeetings. Although the facts are a bit murky, it appears thatfrom time to time there might have been only one or two appointedemployer trustees, not three as required by the trustagreements.There were other issues in the case, which will not be discussedhere, as they do not relate to the issue of the association’sappointment of trustees.The chapter asserted that it did not appoint the requirednumber of trustees because it claimed it couldnot find anybody willing to serve as a trustee. The uniontrustees of both plans, together with representative participantsof both plans, sued the chapter for breach offiduciary duty for its failure to appoint trustees and forits failure to monitor trustees. In addition, they sued thechapter executive, alleging he should not have been anappointed trustee because the trust agreement prohibitedit. The union also alleged that the chapter executivefailed to comply with the trust agreement by votingon behalf of absent and nonexistent trustees. And, in thecase of the pension fund, the trust agreement allocatedonly 1½ votes to him, but he voted three votes.learn more >>EducationTrustees and Administrators InstitutesJune 11-13, San Francisco, CaliforniaFor more information, visit www.ifebp.org/trusteesadministrators.From the BookstoreTrustee Handbook: A Guide to Labor-ManagementEmployee Benefit Plans, Seventh Editionby Claude L. Kordus. International Foundation. 2012.For more details, visit www.ifebp.org/books.asp?7068.april 2012 benefits magazine 23
professional trusteetakeaways >>• For a professional trustee to be used, the trust agreements need to provide this position.• Employer associations responsible for appointing management trustees often cannot findindividuals willing to serve.• A professional trustee will charge for his or her services and likely will incur expenses.• Use of a neutral trustee means both sides need to be reasonable in the actions theypropose.• All trustees have a fiduciary responsibility to the plan and its participants.After reflecting on the facts and thelaw, the court found the following:• The chapter executive breachedhis fiduciary duty by casting allthree votes on NECA’s behalf. Hefailed to comply with the pensionplan’s trust agreement, which is abreach of fiduciary duty.• The court did not make a determinationas to whether or not thechapter executive breached hisfiduciary duty by casting votes onbehalf of nonexistent trustees.• The chapter executive is ineligibleunder the plan documents toserve as an employer trustee onboth benefit plans.• The chapter breached its fiduciaryduty to the benefit plansby not appointing three trusteesto each plan and not followingthe mandate of the trust agreementto fill vacancies within 30days.• The power to appoint or removetrustees carries with it the concomitantduty to monitor itstrustees’ performance. The chapterhad no system to monitor itsappointed trustees and, therefore,is liable for any breaches committedby the trustees. Furthermore,the court found that both thechapter and the chapter executivewere liable for these breaches offiduciary duty.In addition, the court entered ajudgment against the chapter that requiredit to:• Appoint the required number oftrustees in a timely fashion, andto continue to timely fill vacanciesas they arise• Otherwise comply with the plandocuments• Comply with its own constitutionand bylaws• Monitor the trustees it appointsto the board• Pay nominal damages of $10.The court also entered judgmentagainst the chapter executive enjoininghim from serving as a trustee and orderinghim to pay nominal damages of $10.This case is a good illustration ofhow a professional trustee could bevery useful. Of course, in this particularcase the trust agreement would haveto be amended to permit it, but the fiduciaryduty of the chapter to appointtrustees could be met with the appointmentof a professional trustee(s).What Practical ConsiderationsApply to the Appointmentof a Professional Trustee?The professional trustee will chargefor his or her services. Presumablythere also will be expenses incurred onthe professional trustee’s behalf fromtime to time.ERISA Section 406 prevents a trusteefrom receiving any money from theplan. However, Section 408(c) statesthat nothing in Section 406 shall beconstrued to prohibit a trustee from receivinga benefit from the plan as a participantor beneficiary, receiving anyreasonable compensation for servicesrendered, or for the reimbursementof expenses properly and actually incurredin the performance of his dutieswith the plan, except that no person soserving who already receives full-timepay from an employer or an associationof employers whose employees areparticipants of the plan, or from anemployee organization whose membersare participants in the plan, shallreceive compensation from such plan,except for reimbursement of expensesproperly and actually incurred.Assuming that the professionaltrustee is not already a full-time employeeof a contributing employer orthe sponsoring union, the trustee’scompensation and expenses can bepaid from:• The trust or• The sponsoring entity appointingthe trustee.Generally, a professional trustee appointedto serve as either a managementtrustee or a union trustee wouldbe paid by the entity that appoints himor her. However, the trust fund generallywould pay the professional trustee’sexpenses, just as any other trustee’s expenseswould be paid. An independentfiduciary hired to resolve a specific issue,or a neutral trustee appointed either fora specific purpose or indefinitely, mostlikely will be paid by the trust fund.24benefits magazine april 2012
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