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Overview of PBGC’s Fiduciary Breach Investigations

If you use discretion in administering or managing a pension plan, or have discretionary control over a pension plan’s assets, you are a fiduciary and owe duties to the plan.

Plan fiduciaries generally include plan trustees, plan administrators, members of a plan’s administrative and/or investment committees, and any other plan official. However, even if you are not a plan official, you may be a fiduciary if you have discretionary authority to administer or manage the plan, or discretionary control over the plan’s assets.

A fiduciary to a plan – 

  • Must act solely in the interest of participants and their beneficiaries.
  • Must use a pension plan’s assets exclusively for (1) payment of benefits to participants and their beneficiaries and (2) payment of reasonable expenses of administering the plan. The assets may not be used for any other purpose, such as paying business expenses or for personal gain.
  • Must take actions with respect to the plan in a prudent and diligent manner. These actions include the investment of plan assets.

A fiduciary who violates any of these duties is personally liable for the plan’s losses.

PBGC’s Role and Responsibilities

When PBGC takes over a terminated pension plan and becomes the statutory trustee, it receives all plan records pertaining to participants and plan assets. These include documents such as bank statements and information on plan investments. If PBGC identifies an issue that indicates a possible fiduciary breach, the agency conducts a full investigation.

As the statutory trustee of a terminated pension plan, PBGC is authorized under the Employee Retirement Income Security Act of 1974 (ERISA) to recover money owed to the plan and to bring lawsuits on the plan’s behalf.

PBGC has three years from the date it becomes trustee to bring a legal action against former fiduciaries who breached their duties to the plan at any time during the plan’s existence. 

In such lawsuits, PBGC asks the court to enter a judgment against the former fiduciaries for the amount the plan lost, because of their violations.

PBGC identifies potential fiduciary breach violations while evaluating whether a plan should be terminated, valuation of plan assets after PBGC becomes trustee, and integration of assets into PBGC’s investment portfolio. 

Potential fiduciary breach violations may come to the attention of PBGC through various sources, including, but not limited to, PBGC’s review of the plan’s: 

  • Form 5500 filings
  • bank statements and/or asset statements
  • actuarial valuation reports
  • financial statements

In addition, PBGC may learn of potential fiduciary breaches through: 

  • Referrals from the Department of Labor (DOL).
  • Contact from participants and/or beneficiaries of the pension plan.

PBGC’s fiduciary breach investigations generally cover the following broad categories:

Plan Loans 

The following are examples of plan loans that will be investigated by PBGC:

  • Plan fiduciary authorized a loan from the plan to the plan sponsor. 
  • Plan fiduciary authorized a loan from the plan to an individual or entity. For example: 
    • A loan from the plan to an individual who is not a participant in the plan.
    • A loan from the plan to an entity that is fully or partially owned by the plan fiduciary.
    • A loan from the plan to a business that is related to the plan sponsor.

Withdrawals from Plan Assets

PBGC will investigate withdrawals/transfers of assets from the plan for a purpose other than to provide benefits to participants and beneficiaries or to pay plan expenses. 

The following are examples of an improper use of plan assets that may be investigated by PBGC:

  • Plan fiduciary transfers money from the plan to the plan sponsor for company expenses. PBGC has found that such transfers often occur when the plan sponsor is in financial distress.
  • Plan fiduciary transfers money to himself.
  • Plan fiduciary transfers money to a third party or to an individual or entity that is not related to the plan.  

Plan Investments

Plan fiduciaries are required to make prudent investment decisions.

The following are examples of plan investments that may be investigated by PBGC:

  • Plan fiduciary invests plan assets in unconventional investments (for example, real estate, investments that are not publicly traded, or illiquid investments).
  • A large percentage of the plan’s assets are invested in a single security or one type of security.
  • Plan fiduciary authorizes the plan to invest in Employer Securities. 

Plan Expenses

Plan fiduciaries are permitted to use plan assets to pay reasonable plan expenses. PBGC will investigate payments for unrelated expenses. For example: 

  • Plan pays expenses related to sponsorship of the plan such as an analysis of whether to amend the plan or the affordability of the plan. These are known as settlor expenses and must be paid by the plan sponsor.
  • Plan pays for other expenses that are required to be paid by the plan sponsor.
  • Plan pays for expenses that are related to another retirement plan that is also sponsored by the plan sponsor.

A plan fiduciary is personally liable for any breach of their responsibilities or duties to a plan.

When PBGC discovers a fiduciary breach, it may seek restoration of the losses that were sustained by the plan through:

Settlement Agreement between PBGC and the Plan Fiduciary

  • If the plan fiduciary is entitled to a plan benefit, in lieu of litigation, PBGC may offer the option of offsetting/reducing the plan fiduciary’s plan benefit to satisfy their liability to the plan.  
  • If the plan fiduciary is married, the consent of their spouse is required before their plan benefit can be offset/reduced. Such consent must be in writing.

PBGC’s Mediation Program 

PBGC may offer the option of mediation through PBGC’s Mediation Program.

Litigation

PBGC initiates litigation in a U.S. District Court to recover the losses suffered by the plan, as a result of a fiduciary breach.
 

Last Updated: August 20, 2021