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Understand the ERISA fiduciary exception to the attorney-client privilege

May 2, 2012


It’s a privilege

Plan sponsors communicate with attorneys as to plan requirements and potential legal issues regularly. These communications may be subject to the attorney-client privilege, but then again, they may not. This article explains what ERISA plan fiduciaries must understand about the attorney-client privilege and its exceptions.


Many qualified retirement plans will employ an attorney at some point to give advice regarding the plan or create various plan documents. ERISA plan fiduciaries must understand how attorney-client privilege works for them and its exceptions.

The privilege

The attorney-client privilege is one of the strongest privileges permitted under United States law. Generally, it makes matters discussed between the attorney and client confidential, and the attorney cannot divulge information discussed with the client without the client’s consent. The aim is to allow clients to communicate freely with their attorney.

However, the attorney-client privilege isn’t without exception — there are times it doesn’t apply or when a client unknowingly waives the privilege. And when the communication involves retirement plans and ERISA fiduciaries, certain discussions qualify for the privilege while others don’t. It depends on whom the attorney is representing at the time of the conversation with the fiduciary — it could be the fiduciary or plan participants and beneficiaries, depending on the topic.

The fiduciary exception

The fiduciary exception to the attorney-client privilege affects those who act only in a fiduciary capacity. Under ERISA, a fiduciary is a person who:

•    Exercises any discretionary authority or control over the plan’s management or the disposition of its assets,
•    Renders investment advice with respect to plan funds or property for a fee or other compensation or has any authority or responsibility to render such advice, or
•    Has discretionary authority or responsibility in the plan’s administration.
Fiduciary responsibilities include:
•    Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them,
•    Carrying out their duties prudently,
•    Following the plan documents (unless inconsistent with ERISA),
•    Diversifying plan investments, and
•    Paying only reasonable plan expenses.

The fiduciary exception allows certain discussions between the plan fiduciary and an attorney to be disclosed to plan participants and beneficiaries.

The topic of conversation

It can be complicated to determine if a communication falls under the fiduciary exception. The Fourth Circuit Court found that attorneys communicate with ERISA fiduciaries in one of two ways:

1.    Advising a fiduciary on fiduciary matters. Fiduciary matters generally fall under the exception, and thus can be disclosed to participants and beneficiaries. For example, if the ERISA plan fiduciary (employer) and legal counsel discuss a matter of plan administration, the fiduciary may not claim the privilege against the participants because the participants are actually the attorney’s clients in this scenario.

2.    Advising a fiduciary on nonfiduciary matters. Settler functions, such as choosing the type of plan or options in the plan, are nonfiduciary matters that fall under the attorney-client privilege. For example, the attorney-client privilege applies when a fiduciary consults with an attorney regarding business matters, such as plan design or termination. Discussions of this nature involve business decisions and aren’t related to plan management or administration, so the fiduciary is the client and retains the privilege.

An example

Keep in mind that a fiduciary’s status can change during a single discussion. For example, suppose a discussion starts by talking about a plan’s investment performance and then changes to plan termination issues. The first half of the discussion falls under the fiduciary exception because investment performance is a fiduciary action pertaining to the plan, but is really for the benefit of the participants. Thus the exception applies and the privilege doesn’t apply.

However, the second half of the conversation about plan termination issues falls under plan design and is protected under the attorney-client privilege. The exception won’t apply if the fiduciary was seeking advice for his or her protection in anticipation of litigation.

Know the difference

The attorney-client privilege, along with the fiduciary exception as it applies to ERISA retirement plans, is a complex matter. Review with your legal counsel to learn more about when the privilege does and doesn’t apply.

Steps to take to avoid litigation

Plan fiduciaries must understand that their communications with their attorney about the administration of their retirement plan may not be confidential. To avoid possible litigation, plan fiduciaries should consider designating a specific attorney as their ERISA legal counsel.

By segregating the attorney communications you have on fiduciary matters, you can control the communications that could fall under the attorney-client privilege exception. The less your ERISA attorney is involved with your internal business operations, the more control you have over the information flow and the stronger your attorney-client privilege becomes.

Because the application of the attorney-client privilege exception varies in each jurisdiction, discuss any concerns with your legal counsel. It’s best to separate your business advisor from your legal advisor.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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