Definition
Co-fiduciary liability is the ERISA provision that can hold one plan fiduciary personally liable for another fiduciary's breach — where the co-fiduciary knowingly participated in the breach, enabled it through their own breach of duty, or knew of the breach and failed to make reasonable efforts to remedy it.
Why it matters
Most ERISA plans are administered by more than one fiduciary — a plan sponsor, a plan administrator, an investment committee, a trustee, an investment consultant. Co-fiduciary liability is the mechanism that keeps multiple fiduciaries from insulating themselves from breach exposure by pointing to a co-fiduciary as the responsible party. It is the source of the practical rule that a fiduciary who observes another fiduciary's misconduct cannot simply do nothing.
How it works
Co-fiduciary liability is established under ERISA Section 405(a). The statute specifies three distinct triggers, any one of which is sufficient. First, a fiduciary is liable for another fiduciary's breach if the co-fiduciary knowingly participated in or concealed the breach. Second, the co-fiduciary is liable if their own failure to comply with Section 404 fiduciary duties enabled the other fiduciary to commit the breach — for example, by failing to establish or maintain reasonable procedures for reviewing the other fiduciary's conduct. Third, the co-fiduciary is liable if they knew of the breach and failed to make reasonable efforts under the circumstances to remedy it. Section 405 also allocates liability among fiduciaries who share responsibility for a particular function, and provides limited procedures under which fiduciary responsibility can be allocated by written agreement (subject to residual monitoring duties that cannot be delegated). The upshot is that fiduciary status carries with it responsibility for the fiduciary conduct of others where the co-fiduciary either enabled or failed to respond to that conduct.
In practice
For an individual DC plan participant, co-fiduciary liability is what expands the pool of parties potentially responsible for a plan-level fiduciary failure beyond the single decision-maker. In fiduciary breach litigation, plaintiffs typically name multiple fiduciary defendants — sponsors, committee members, investment consultants, sometimes recordkeepers acting in a fiduciary capacity — under co-fiduciary liability theories. What an individual generally observes only indirectly is the internal effect of co-fiduciary liability on plan governance: the reason plan committees maintain documented monitoring procedures, the reason committee members request specific documentation from consultants and service providers, and the reason plan fiduciaries take a duty-to-remedy view of observed problems rather than a passive-observer view. Plan fiduciaries should recognize that in-plan lifetime income evaluation involves multiple fiduciaries — often the investment committee, the plan sponsor as named fiduciary, and any retained investment consultant — and that co-fiduciary liability applies to each, meaning documentation, monitoring, and responsive action requirements apply across the fiduciary group and not just at the point of ultimate decision.
Related terms
- Fiduciary breach
- ERISA Section 404
- ERISA fiduciary
- Named fiduciary
- Fiduciary liability insurance
- Prudent expert standard
- Investment policy statement
- Plan committee