Definition
A fiduciary breach is a failure by an ERISA plan fiduciary to satisfy one or more of the fiduciary duties imposed by ERISA — most commonly the duties of loyalty, prudence, diversification, or adherence to plan documents — exposing the fiduciary to personal liability for participant losses caused by the breach.
Why it matters
Fiduciary breach is the operative concept in ERISA fiduciary litigation. It is the wrong that Section 404 duties are enforced against, the finding a court makes when it holds a plan fiduciary liable, and the exposure that fiduciary liability insurance is written to cover. Naming the breach concept makes the enforcement side of ERISA fiduciary duty explicit rather than implicit.
How it works
A fiduciary breach is established when three elements are shown: fiduciary status (the defendant was acting as a fiduciary with respect to the plan at the relevant time), a violation of one of the ERISA fiduciary duties (typically Section 404(a)(1) loyalty, prudence, diversification, or plan-document adherence, though other ERISA provisions can be the operative duty), and, for money damages, resulting loss to the plan. ERISA Section 409 provides that a fiduciary who breaches responsibilities is personally liable to make good to the plan any losses resulting from the breach, and to restore any profits made through use of plan assets. Section 502 provides the enforcement mechanisms — civil actions by the Department of Labor, by the plan, by participants, or by beneficiaries — and specifies the available remedies (equitable relief, monetary damages, removal of the fiduciary, and, at the court's discretion, attorneys' fees). Fiduciary breach claims can be brought individually or as class actions; the largest DC plan fee cases in recent years have proceeded as class actions and produced settlement figures ranging from single-digit millions to figures above one hundred million dollars for the largest plans, though the distribution is highly dispersed and any specific case's settlement magnitude depends on plan size, alleged conduct, and the strength of the underlying legal theory.
In practice
For an individual DC plan participant, fiduciary breach is what makes it possible to seek redress when a plan's fiduciaries have failed the participant population — either through poor investment selection, excessive administrative fees, imprudent lifetime income decisions, or other conduct that violates ERISA fiduciary duties. Individual participants rarely bring standalone fiduciary breach claims; the substantial cases typically proceed as class actions on behalf of participant groups. What an individual can reasonably do is understand that the plan's fiduciaries carry personal liability for plan decisions and that plan committee documentation exists in part to demonstrate satisfaction of fiduciary duties. Plan fiduciaries evaluating in-plan lifetime income options should recognize that both action and inaction can support a breach claim — the recent wave of ERISA litigation has included both cases alleging imprudent selection of options and cases alleging imprudent failure to consider available options, and both categories will apply to lifetime income evaluation going forward.
Related terms
- ERISA Section 404
- ERISA fiduciary
- Prudent expert standard
- Exclusive benefit rule
- Diversification requirement
- Co-fiduciary liability
- Fiduciary liability insurance
- Named fiduciary