Navigating the heavily regulated world of employee benefit plans is difficult. As a result, benefit plan fiduciaries — such as trustees and committee members — often work closely with their attorneys to help them fulfill their duties and keep their plans running properly. Many, and perhaps most, of those fiduciaries may think that all of their communications with their attorneys are confidential.
But not all communications between plan fiduciaries and their attorneys are privileged from disclosure. The so-called "fiduciary exception" prevents ERISA fiduciaries from asserting the attorney-client privilege against their plan participants and beneficiaries in certain circumstances. Fiduciaries should know before they speak with their attorneys whether the participant/beneficiary can be privy to the privileged communication. The purpose of this article is to highlight the issue, and to give fiduciaries a basic understanding of both the attorney-client privilege and this important exception.
Attorney-Client Privilege Basics
The attorney-client privilege applies only to communications between an attorney and a client in confidence for the purpose of obtaining or providing legal assistance for the client. The purpose of the privilege is to insure open disclosure between client and attorney. When that purpose ends, the privilege ends as well. So, for example, non-legal business advice is not privileged. Nor are communications that are not made "in confidence" privileged. (For that reason, when attorneys wish to maintain the confidentiality of a communication, they often excuse persons other than the client from the room.)
Unless the communication meets all those requirements — between an attorney and client, in confidence, and for the purpose of providing legal assistance — it is not protected from disclosure. In the context of communications between the attorney and the plan fiduciary, the fiduciary exception to the attorney-client privilege may apply.
Fiduciary Exception Basics
Many courts have recognized that ERISA "abounds with the language and terminology of trust law." Consequently, courts often turn to trust law concepts when deciding ERISA disputes. One of those concepts — the fiduciary exception to the attorney-client privilege — came into use well over a century ago in the trust context, and by the 1980s, federal courts began to apply the concept in ERISA cases. To gain a better sense of when the fiduciary exception applies, it helps to understand why courts have applied it. Courts have followed two primary approaches:
Duty of Disclosure
Some courts focus on an ERISA fiduciary's obligation to provide full and accurate information about plan administration to the plan participants. In a sense, those courts consider one policy consideration (the duty of full disclosure) to be more important than a competing principle (the sanctity of attorney-client communications).
The Real Client
Other courts have essentially concluded that, when an ERISA fiduciary is focused on administering the plan, the fiduciary is not the "real" client. Instead, the ultimate beneficiaries of the advice are the plan participants themselves, and thus, those participants, rather than the fiduciary, are the real clients for the purpose of the attorney-client privilege. Under this approach, the fiduciary never enjoyed the privilege in the first place.
The Exceptions to the Fiduciary Exception
Not all actions related to a plan taken by a person who is otherwise a fiduciary, however, are fiduciary in nature. As a result, there is an "exception to the exception."
Courts have recognized two types of situations in which the fiduciary exception does not apply. The first exception is the "settlor exception." The second is the "liability exception."
Settlor versus Fiduciary Functions
The settlor exception to the fiduciary exception distinguishes between fiduciary functions and "settlor" functions. Courts often ask "which hat" a person is wearing. When performing fiduciary functions (i.e., exercising discretionary authority or discretionary control respecting plan management, or any authority or control regarding management or disposition of plan assets, rendering investment advice for a fee or compensation, or having discretionary authority or responsibility regarding plan administration), a person wears the "fiduciary hat." When performing other functions, they are wearing a "settlor hat."
If a person wearing his fiduciary hat seeks advice from an attorney regarding plan administration, he is engaged in a fiduciary function. If a dispute subsequently arises between the fiduciary and the participants, the fiduciary may not be able to protect the communication from disclosure to the participants.
However, persons who might otherwise be a plan fiduciary may seek advice about issues that do not directly involve the administration of the plan. The Supreme Court has held that adopting, forming, modifying and terminating an employee benefit plan are non-fiduciary, settlor functions. When persons — including persons who are otherwise fiduciaries — seek legal advice about those non-fiduciary functions, the advice they receive is generally subject to the "settlor exception."
Pre-Decisional versus Post-Decisional Advice -- the Liability Exception
The "liability exception" recognizes that when a fiduciary seeks the advice of counsel because he anticipates claims against him by the participants, he cannot be compelled to disclose that advice to the plan beneficiaries. That is, when the fiduciary consults with counsel about his own liability, the communication is protected. The key issue here is whether the advice is "pre-decisional" or "post-decisional."
Generally, "pre-decisional" advice relates to fiduciary action that is part of the ordinary administration of the plan. For example, advice about a participant's benefit claim is often "pre-decisional." "Pre-decisional" advice is generally subject to disclosure to the participants. "Post decisional" advice is rendered after the plan action, when fiduciaries are warranted in seeking confidential advice from counsel, even if that confidential advice involves plan administration issues.
Conclusion
Benefit plan fiduciaries should not assume that all of their communications with their attorneys are confidential for all purposes. The issue is subject to a fairly complex analysis. At a minimum, before communicating with counsel, fiduciaries should ask "what is the purpose of the communication?" and "who is benefiting from the communication?"
Asking these questions may help fiduciaries recognize, in advance, which communications are more likely to be discovered and which communications are more likely to be maintained in confidence from the participants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
