ESOP Fiduciary Training and Certificate
Comprehensive Curriculum developed by trusted industry leaders
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Comprehensive Curriculum developed by trusted industry leaders
Applicable
Our ESOP Basic Fiduciary Training Program is designed for members of fiduciary committees and other employees who have primary responsibility for the operation of their companies' ESOP or ERISA plans.
Wide-ranging
While other fiduciary training programs address investment practices and administration, DirectorsMarketplace’s ESOP Basic Fiduciary Training Program includes content related to fiduciary duties, plan governance, plan documents, monitoring outside consultants and participant communications.
Flexible
Our online approach allows the user to study at their own pace. All of our lessons and tests are available exclusively online, so getting access is much easier and flexible.
Successful completion of both TWO modules of the program will result in the awarding of DirectorsMarketplace.org's ESOP Basic Fiduciary Training certificate. Continuing education credits are required, and are also available through ours or other groups programs. We require the completion of the following two education modules and pass the exam to receive the certificate:
Each module consists of ERISA and Fiduciary content followed by an online test. The process is designed so the user can view the program as many times as necessary before taking the test. After registering, the user will have up to THREE (3) months to complete the program.
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DirectorsMarketplace.org's Fiduciary Training Program is designed for all ESOP fiduciaries. We have broken down the body of Knowledge into 3 separate, but progressive levels. The first level is the designed for members of the ESOP Fiduciary Committee. The second level is for members of an ESOP Company's Board of Directors. The third and most demanding level of our fiduciary body of knowledge is designed for Internal Trustees. The Director and Internal Trustee levels must pass the prior level's exam before advancing to the next level. The basic ESOP Fiduciary Course is composed of TWO modules to educate the candidate with the ERISA governance requirements:
The basic ESOP Fiduciary Course is composed of TWO modules to educate the candidate with the ERISA governance requirements:
For the ESOP Director Course's body of knowledge, our course advances the candidate's understanding of their role in an ESOP company and how boards work. There are three additional modules to pass:
For the ESOP Internal Trustee Course's body of knowledge, we advance an internal trustee with their roles and responsibilities with complex issues, as well provide them with a Trustee's check list. There are three additional modules to pass, for a total of 8 modules, plus over 400 test questions:
Each module is self-contained and can be taken independently. At the conclusion of each module, you must take a multiple question test to earn credit to receive your certification. You may take each module multiple times. All tests are pass-fail, and you must complete all four modules to earn your certification.
The curriculum has been developed by some of the BEST ESOP advisors in the United States. The authors are also the faculty for continuing education (Click here to view our faculty), and can also be found as advisors at our sister website: www.esopmarketplace.com/advisors.
Directorsmarketplace.org invited fiduciary and financial consultants, as well as nationally recognized ESOP, Governance, ERISA and employee benefit attorneys. This program is not intended as legal advice nor does it shield a trained fiduciary from following industry-accepted rules for conducting due diligence or other practices of managing their ESOP Company and plan. Outside consultants and attorneys play an important role in managing your ESOP plan and provide valuable independent opinion in helping fiduciaries mitigate and manage their risks.
In this program you will learn:
Directorsmarketplace.org's ESOP Fiduciary Training Program is a self-study, online certification program. We have broken down the body of Knowledge into 3 separate, but progressive levels. The first level is the designed for members of the ESOP Fiduciary Committee. The second level is for members of an ESOP Company's Board of Directors. The third and most demanding level of our fiduciary body of knowledge is designed for Internal Trustees.
Our approach is for each candidate to determine which level of knowledge they want to study and be tested on. Once the candidate has selected the desired level, they register and pay for access to the study modules and exam. We have broken down the huge body of knowledge into separate modules to help the candidate absorb the content in order to pass the module's exam.
Once registered, attendees can log on from anyplace, at any time. Registered candidates have 91 days from the initial sign on date, to complete the program and be fully tested. Each module is self-contained and can be taken independently. At the conclusion of each module, a multiple question test follows, to earn credit to receive your certification. Candidates may take each module multiple times. All tests are pass-fail, and candidates must complete all four modules to earn their certification.
Once the candidate successfully completes the study program and passes the modules' exams, we will award a certificate of achievement that will be tracked by our membership system for future verification. The DOL requires fiduciaries to maintain their continuing education, and document those educational sessions for future reference. We require a certificate holder to annually retake the test as we update the lessons and exams for new or changing laws.
Going forward, certificate holders will be invited to continuing education programs at our regional and national educational events to maintain their certificate. At our regional continuing educational events, each level will have their own educational track so that companies can send their fiduciaries of all levels and complete their minimum requirements for continued certification.
Recently, ESOP plan sponsors have learned the DOL is now asking for verification that the ESOP Company's Fiduciaries, ie. the Fiduciary Committee, Directors and Internal Trustees, have received fiduciary training over the past year. The DOL has required training as part of its legal settlements, meaning the fiduciaries are required to identify such programs, subject to the Department's approval on a facts and circumstances basis. One approach to meeting this requirement is to invite an ERISA Attorney for a training class. Our approach is to avoid the challenges of finding the budget and the staff time to schedule an onsite training and testing program. We designed our process as an internet based, fiduciary training program that provides a certificate showing that the individual studied the program and passed a test. Our authors and faculty are well known ESOP advisors and know what content the DOL seeks in documentation.
DirectorsMarketplace.org has broken down the modules into three progressive fiduciary groups: 1) Members of a Fiduciary Committee, 2) Members of the board of directors, and 3) the internal trustees. In order for the internal trustee to meet our standards of the body of knowledge, they must be trained and must pass the exams of the ESOP Fiduciary and ESOP Director modules before being trained and tested on the Trustee module. ESOP Directors must pass the Fiduciary modules before taking their Director exam. The directors have the power to appoint fiduciaries, including the trustee. We consider the internal trustee(s) as the highest level of governance in an ESOP company because they have the responsibility of setting the company's stock valuation price, they vote to elect board members, and they are responsible for ensuring ESOP plan's documentation is properly maintained. While the board of directors is the managing body, the shareholder is the trustee, who elects or appoints the directors.
Once a candidate passes an exam, our process will document their achievement and award them a certificate they can add to the DOL Audit documentation.
John A. Kober, Esq. Gregory K. Brown, Esq.
Sponsor companies, Boards of Directors, plan fiduciaries, and ESOP committee members should begin (or continue) to implement Best Plan Practices to address retirement plan matters. They must remember that they still have liability even if they hire a third party to administer the plan.
Introduction
Retirement plans holding company stock have taken center stage as part of an overall national dialogue. Few days pass by without news of yet another company or fiduciary being sued by its employees.
The lawsuits are typically related to (1) a decrease in the value of the employer stock held by a retirement plan, (2) the elimination of the value of the employer stock as a result of the company reorganizing under the bankruptcy rules, or (3) allegations that the appraisal of employer stock is flawed and the plan paid too much for the stock.
In particular, a number of newspaper and professional journal articles have been written—and will continue to be written—on what the various plan fiduciaries did (or did not do).
As the courts continue to develop this body of law, companies are faced with the uncertainty of:
Because of these events, companies have learned—and are being advised about implementing—“good retirement plan governance” ("Best Plan Practices").
Who Is the Fiduciary?
Courts seem to draw a distinction between:
Depending on (1) the facts and circumstances of the particular company and (2) who is the plan fiduciary, the fiduciary may not be able to remain inactive as the company stock value decreases.
In determining who is a plan fiduciary, the courts often take a close look at:
A review of the plan documents and the minutes of the board of directors will usually set forth the "named" or "designated fiduciaries" of the retirement plan. For companies, both public and private, a board-appointed committee typically will be the principal fiduciary for the plan investments, including the investment in employer company stock, under the plan documents.
Other individuals can also become fiduciaries by exercising discretionary authority and control over (1) the management of the retirement plan or (2) the investment of retirement plan assets. In other words, those individuals actually "calling the shots" on the investment of retirement plan assets or on the administration of the retirement plan will be considered fiduciaries—as well as the named trustee and the named committee members.
In addition, an individual or the board of directors who appoints a fiduciary of the retirement plan can also be considered a fiduciary with respect to (1) the act of making such an appointment, (2) the ongoing monitoring of the activities of the fiduciary and (3) the retention or removal of that fiduciary.
A trap for the unwary involves the board of directors simply naming the "company" as the fiduciary of the retirement plans. The question arises as to whether this type of designation makes the members of the board of directors and/or the officers of the employer company fiduciaries of the retirement plans.
There is lack of clarity in determining who may be a fiduciary when the company is named as the "fiduciary." Since there is the prospect for second-guessing by a court, companies implementing Best Plan Practices should specifically designate an individual, group of individuals (i.e., a committee) or an independent fiduciary to serve as the retirement plan fiduciary. That group should have its own written charter describing its duties and manner of action.
Since the board of directors normally has the responsibility to appoint qualified individuals to serve as a fiduciary (and then to monitor the activities of those fiduciaries), it is better for the board to decide who is qualified to make decisions as a retirement plan fiduciary.
Duties of a Fiduciary of a Retirement Plan that Holds Employer Company Stock
Fiduciaries of an employee stock ownership plan (ESOP) continue to struggle with:
It is not entirely clear what the standard of fiduciary care is with respect to the employer stock held in an ESOP. This is an area of the law that is still evolving. The courts continue to establish principles as litigation moves through the legal process.
Perhaps the best current view, and a useful one for fiduciaries trying to come to grips with what they should be doing, derives from a 1995 decision rendered in the Third Circuit in Moench v. Robertson. This case has been followed by the Second, Fifth, Sixth, Seventh and Ninth Circuits.
Moench essentially stands for the proposition that there is a "presumption" that it is prudent for the ESOP fiduciary corporation to invest in and hold employer corporation stock. However, the presumption is a reputable presumption. Accordingly, the ESOP fiduciary may, under certain dire circumstances, be forced to conclude that the employer stock is an imprudent investment.
Therefore, under Moench, an ESOP fiduciary may be able to hold employer stock and not sell any employer stock under circumstances when, for any other type of retirement plan investment, the fiduciary would likely conclude those assets should be sold.
What Should a Fiduciary Do?
Accordingly, many ESOP fiduciaries have implemented a process that documents the fact that they are monitoring: (1) the employer corporation’s stock performance, (2) the business conduct of the employer company, and (3) the financial performance of the employer company. From a Best Plan Practices standpoint, it is important that the ESOP fiduciary (1) document his, her, or its actions and (2) maintain permanent records of his, her, or its deliberations.
Similar to, but different from, a private company, public companies that sponsor an ESOP are also expanding employee diversification rights. This is especially true in situations where an employee directs some or all of his or her salary reduction deferrals into employer stock investments.
Expanding the diversification rights may have the benefit of putting less pressure on the fiduciary of those retirement plans to make a proper decision as to when to buy, sell, or hold the employer corporation stock—by shifting that responsibility to the ESOP participant.
If the ESOP is holding publicly traded stock, it is important that the participant’s decision to invest in employer stock becomes subject to ERISA Section 404(c). ERISA Section 404(c) generally provides that, if a retirement plan permits participants to exercise the investment control over their accounts, no person who is otherwise a fiduciary will be liable for any loss that results from the participant’s decision to invest in employer stock.
Because of recent events and legislation, the trend has been to allow greater employee diversification rights. However, there are potential negatives from the perspective of the employer corporation. For example, the reduction in the number of shares of employer stock held by the retirement plan as a whole may result in the "primarily invested" in employer stock requirement to be violated.
Another area that employers are focusing on as they develop Best Plan Practices involves the ESOP summary plan descriptions. ESOP summary plan descriptions are getting a fresh look in light of the ESOP fiduciary litigation. In particular, disclosures concerning the risk of employer stock, the importance of investment diversification when planning for retirement, and, where applicable, the distribution parts of the disclosures are being expanded.
Following not far behind the expansion of the ESOP summary plan descriptions, many employers are looking hard at hiring an independent fiduciary to manage the retirement plan. This is because there is a presumption (whether it is accurate or not) that inside trustees allegedly know of information that arguably should have been provided to the ESOP participants—or at least failed to give out fully accurate information.
With regard to information dissemination, an inside fiduciary is affected in at least two major ways. First, there is a question as to whether or not those persons have a duty to provide information to ESOP participants so that the participants can act on that information. Second, there is a question as to what a fiduciary should do when he or she possesses nonpublic or confidential information. The principal concern of a plan fiduciary will often be the second concern. Reconciling this situation can be very difficult under the current environment.
Recently, the trend is for courts to hold that a plan fiduciary does not have a duty to disclose any information to a participant if that disclosure would violate federal securities laws. In addition, federal courts have consistently held that fiduciary committee members are not obligated to trade based on the insider information they possessed. However, the answer may turn out to be more complicated if the fiduciary has confidential information gained in a board of directors meeting or an officers meeting.
To avoid the problem of a plan fiduciary who at some point may possess confidential information, many employer companies are appointing outside fiduciaries. These appointments are made because it is difficult to find insider individuals who will not be prone to claims that they were not making prudent decisions.
Best Plan Practices
Given the current environment, employers are implementing Best Plan Practices to address some of the concerns set forth above. Some of the actions being considered by companies are as follows:
Limitations on Best Plan Practices
The fact that a third party formally assumes responsibility for fiduciary functions under a plan and acknowledges that it is a plan fiduciary means that it will be liable for its acts or omissions in carrying out its fiduciary responsibilities. It does not mean that the named fiduciary such as the board of directors (or committee thereof) is relieved of liability in connection with the third party’s acts or omissions. A named fiduciary’s responsibility for the acts or omissions of another party is governed by Section 405(c) of ERISA, which provides that a plan may include procedures for the named fiduciary to delegate its fiduciary responsibility to another party by designating it to carry out the named fiduciary’s responsibilities under the plan. If the delegation of fiduciary responsibility to a third party meets certain requirements, the named fiduciary will not be liable for its delegatee’s acts or omissions. However, this relief is subject to three significant limitations:
First, the delegating fiduciary must ensure that the plan provides for the delegation, and the delegation cannot be broader than the plan permits.
Second, the named fiduciary will be liable for the third party delegatee’s acts or omissions to the extent the named fiduciary violated ERISA’s prudent man standard of care with respect to: (1) delegating fiduciary responsibility, (2) establishing or implementing the plan’s delegation procedure, or (3) continuing an existing delegation. Thus, a named fiduciary is liable for the acts or omissions of its third-party delegatee unless its actions in connection with the delegation are (a) solely in the interest of the plan’s participants and beneficiaries, (b) for the exclusive purpose of providing benefits under the plan, and (c) prudent under ERISA.
Third, Section 405(c) relief is not available to the named fiduciary to the extent that it would otherwise be liable for the acts or omissions of its third party delegatee as a co-fiduciary. Section 405(a) governs a fiduciary’s liability for the actions of the plan’s other fiduciaries. It provides that a plan fiduciary can be held liable for a co-fiduciary’s breach of fiduciary responsibility if (i) it knowingly participated in or concealed the breach, (ii) its failure to satisfy the prudent man standard of care enabled the breach, or (iii) it knew or should have known of the co-fiduciary’s breach and did not make reasonable efforts to remedy the breach.
The truth is that a plan’s in-house or named fiduciaries cannot completely avoid fiduciary responsibility and potential liability under ERISA simply by retaining a third party to manage plan investments or other fiduciary functions, regardless of the terms of its agreement with the third party. Delegating fiduciary responsibility and deciding whether to continue an existing delegation are themselves fiduciary functions subject to ERISA. Not only does this mean that a named fiduciary must satisfy ERISA’s prudence and exclusive benefit requirements when it delegates its fiduciary responsibilities to third parties—it also means that the named fiduciary is responsible for oversight of the third party delegatee’s performance. A named fiduciary’s failure to monitor a third party delegatee’s performance and, if appropriate, terminate the delegation, is a breach of its fiduciary responsibilities and could result in co-fiduciary liability for enabling a fiduciary breach or for failing to try to remedy such a breach when the named fiduciary knew or should have known that a breach had occurred.
Summary and Conclusion
In conclusion, it is important to be aware that case law continues to evolve in this area. In addition, companies and their boards of directors, plan fiduciaries, and ESOP committee members should begin (or continue) to implement “best practices” to address those retirement plan matters, appreciating that there is no “silver bullet” that completely eliminates fiduciary exposure.
John A. Kober, Esq., is a partner in the Dallas, Texas, office of the law firm of Morgan, Lewis & Bockius LLP, and co-head of the firm’s national ESOP Practice. He can be reached at (214) 466-4105 or jkober@morganlewis.com.
Gregory K. Brown, Esq., is a partner in the Chicago, Illinois office of the law firm of Katten Muchin Rosenman LLP and leads its ESOP Practice. He can be reached at 312) 902-5404 or gregory.brown@kattenlaw.com.
