Congress enacted the ERISA statute expressly to protect employee benefits. Unlike wages, which employees receive directly, employee benefits are established and maintained by other entities, which maintain funds from which to provide benefits to employees in forms other than direct compensation. The entities in question may be tempted to act in ways that benefit themselves rather than the employees who are or may become entitled the benefits, which is precisely what happened all too often in the history preceding the enactment of the ERISA statute. To address this problem, the ERISA statute creates a fiduciary relationship between those who control and manage the employee benefit plans and the participants and beneficiaries who rely on them.
The ERISA statute seeks to limit self-dealing by requiring pursuant to § 1102(a)(1) that employee benefit plans subject to the statute be established and maintained pursuant to a written instrument that “provide[s] for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan.” Those fiduciaries, under § 1104(a), must exercise a “prudent man standard of care.” Specifically, a fiduciary must “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries,” and must do so for the exclusive purpose of “providing benefits to participants and their beneficiaries” and “defraying reasonable expenses of administering the plan[.]” He must do so “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.]” If he is managing a fund, he must act prudently “by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so[.]” Finally, he must act “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with” the ERISA statute.
In addition to articulating the fiduciary framework of employee benefit plans, the “fiduciary responsibility” part of the ERISA statute (which is comprised of §§ 1101 – 1114) rounds out that framework by, among other things:
- Specifying that the assets of employee benefit plans are held in trust by trustees named in the trust instrument or appointed by a named fiduciary ( 1103(a));
- Placing certain limitations and prohibitions on fiduciaries;
- Creating liability for breaches of fiduciary duties; and
- Setting the basic limitation and defenses to alleged breaches.
With respect to an individual participant seeking disability benefits under an ERISA disability plan, it is extremely unlikely that questions will arise about the management and funding of the plan itself. Rather, the major issues will be eligibility for benefits, the claims procedure and federal remedies available to claimants. However, the fiduciary framework described above – and the way it has been interpreted by the federal courts – is crucial to understanding ERISA disability claims, because it informs the way that courts evaluate the claims procedure administrators use to process disability claims and the way they review denials of benefits.