The Department of Labor's exclusion of Northern Trust Co. as a defendant in the department's lawsuit against Enron Corp. ought to provoke discussion on the role and value of a directed trustee.
To what extent does a directed trustee, such as Northern Trust was for the Enron plan, serve only passively, just following orders of a plan sponsor?
To what extent were participants informed of Northern Trust's limited role?
These are important distinctions. Knowing an external trustee also is a full fiduciary would provide participants greater assurance on the security of and accounting for their pension plans.
In a story in Pensions & Investments, Ann Combs, assistant secretary in the Employee Benefits Security Administratgion, said directed trustees "have an obligation to follow directions." The Labor Department, she noted, found no evidence Northern Trust breached its fiduciary duty.
But the courts, rather than the DOL, might ultimately settle the issue of the limits on liability of a directed trustee. A class-action suit, brought by participants last year and still pending, names Northern Trust among the defendants.
"Northern Trust had no business proceeding with the lockdown, and knew, or should have known, it would have disastrous consequences," Eli Gottesdiener, a lawyer representing participants, was quoted as saying, referring to a temporary bar on trading, or lockdown, during a transition of service providers.
The case presents two extremes on the directed trustee role. It shows the Labor Department needs to suggest rules requiring retirement plans spell out clearly to participants the roles of all fiduciaries, directed or otherwise. For directed trustees, disclosure should make clear the limits of their obligations, as well as under what circumstance they might have to intervene to overrule a plan's named fiduciaries. Such policy is better made by the department with a debate on issues, than by the courts handing down a precedent.
