ERISA Breach of Fiduciary Duty: Shifting the Burden Of Proving Causation To the Defendant

Abstract

THE Employee Retirement Income Security Act of 1974 (ERISA) aimed to protect America's workers. It sought to decrease fraud and guard against harm to beneficiaries.1 Congress passed ERISA to protect beneficiaries from losing all they had saved because of wrongful actions of a fiduciary.2 According to U.S. Department of Labor, over half of people who worked in 2012 worked for employers sponsoring a retirement Over sixty-one million people participated in a plan in 2012.A split of authority currently exists whether beneficiary can shift burden of proving causation of losses to fiduciary. The Fourth,4 Fifth,5 and Eighth6 Circuits have held that plaintiff can shift this burden, but Second,7 Sixth,8 Ninth,9 and Eleventh10 * Circuits have held that a shift should not occur. The remaining Circuits have noted split, but they have declined to make a decision on issu* e. 1 * * * * *11 It is unclear if plaintiff must prove causation or can shift that burden to defendant. Recently, Supreme Court denied a certiorari petition on this issue.12 Consequently, circuits must determine for themselves whether and in what circumstances shifting burden to prove causation is appropriate.This article compiles status of this issue across country, analyzes arguments presented in favor of burdenshifting, and argues that burden of proof for causation should be shifted to fiduciary but only after beneficiary meets certain criteria. This shift is based on common law of trusts, which shifts burden to trustee once beneficiary proves duty, breach, and loss.13 Although trust law demands burden shift, this article also suggests shift is beneficial because defendant is in a better position to prove causation and promoting such a shift will benefit fiduciary relationships.I. BackgroundPrior to enactment of ERISA,14 employee retirement plans lacked adequate funds for plan participants.15 Participants could not easily access information about their plans, and there were many cases where fiduciaries were engaged in criminal behavior.16 While Congress attempted to address these issues with various acts of legislation, these problems persisted.17In addition to substantive problems with pension plans, there were also problems with litigation regarding pension plan fiduciary breaches.18 Benefit plans were subject to the crazy-quilt system of legal jurisdiction throughout various states governing non-collectively bargained plans.In 1962, President Kennedy appointed Committee on Corporate Pension Funds. The Committee conducted a study that concluded that prior legislation was not enough, sparking nine years of Congressional debate.20 These debates and investigations ultimately resulted in enactment of Employee Retirement Income Security Act (ERISA) in 1974.21ERISA governs most voluntarily established private-sector retirement plans.2 It requires disclosure of certain information to plan's beneficiaries and sets out standards for each plan.3 Managing each type of retirement plan requires a fiduciary.24 The Department of Labor defines role of a fiduciary as [ujsing discretion in administering and managing a plan or controlling plan's assets.25 Each plan must have at least one named fiduciary.26 This person must have control over plan's operations.27 Typically, a plan's fiduciaries will include trustee, investment advisers, all individuals exercising discretion in administration of plan, all members of a plan's administrative committee, and those who select committee officials. When a person is acting on behalf of plan, she establ ishes herself as a fiduciary.29ERISA defines a fiduciary as:Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in administration of such plan. …