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My daughter works for a company that has used a professional money manager for the last two years to handle the investment of the company's pension and profit sharing funds. Prior to that the four trustees made the investment decisions. The four trustees also happen to be the owners and are all CPA's and therefore should have good financial decision making skills (you would think). It is the employees understanding that against the advice of the professional investment manager the trustees left the funds in a savings account. Her last statement showed that she earned 3.75% on the monies for 1998. She has not received the 1999 statement, but normally would not get that until the following October. The employees think that the monies are still in a savings account. Two requests to one of the trustees for an explanation have gone unanswered.

At my urging she contacted DOL Pension Welfare Benefits and they where no help (what else is new) and Money magazine said they get to many requests to respond to her inquirery. Then it dawned on me why not ask the Fool.

Any suggestions on where she can get information on the trustees liability in this situation. She has read the ERISA regulations and she thinks the trustees did not perform their fiduciary responsibilities.

Before she gets involved in a legal spiral of ever more involving issues does anyone know of a website that she could get information on.

1. What legal recourse do the employees have against the trustees for not investing these funds in a fiduciary responsible manner?

2. Is there a federal or state agency that would sue/fine the trustees for this negligence? (I.e. let the agency sue the trustees without having an attorney get involved in a class action lawsuit.)

3. Can the trustees be required to put monies into the pension and profit sharing plan out of their own personal funds to make up for the lost investment gains that would have occurred during the last two years?
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You are treading a very fine line here. At first, by the title of the post I was fearful that the trustees had run off with the money --- that's grand theft and trustees generally go to jail for that kind of stuff.

However, here we have a case where the trustees seem to be either lazy or ultra-conservative. If you can document the meeting between the investment advisor & the trustees and then the trustees ignored the advisor; you might have the beginnings of a case for "breach of fiduciary duty". A trustee is responsible to guard & safekeep the assets of the trust for the benefit of the beneficiaries. A trustee breaches his or her fiduciary duty when: 1. The trustee places personal interest in front of his primary duty; 2. Makes obvious bad investment decisions that any other prudent man would not make; and the list goes on.

In any event, there is a fine line between a trustee committing a "breach" versus sinply being lazy & stupid. No one goes to jail for being dumb.

I am sure your thinking that even a bad set of mutual fund choices would have been better than assets sitting in a savings account for the last two years. Probably so, however, in order to really pursue this further you need to sit down with an ERISA attorney and obtain his or her counsel. If you have a case; pursue it. If the trustees are CPA's; they certainly have E&O coverage (which will not apply in this case); however, it raises the likeyhood that they have purchased some "fiduciary liability" insurance. Bottom line, you can threaten to sue & the insurance carrier will step in to defend and potentially pay the trust monies.

Hope This Helps.


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Your post is a good one. In situations in my practice similar to this, (my attorney's suggestion for wording) the major difference with the situation UAL described has been the non-action of DOL.

DOL, in my experience, has taken the (very pro-active) position that employers properly discharge their fiduciary responsiblitites with their employees by allowing reasonable alternatives for the employees to make.

Or, did I miss something??

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Thank you for your reply.

According to my daughter DOL does not care how the contributions were invested. In this case the employees had no alternative investment options (i.e. the monies were put in the plans and the trustees were supposed to invest it visa via a 401(k) plan where you have alternatives). Thus the fiduciary responsibility lies with the trustees.

From what she has explained to me and the cod information that she has shown me the ERISA code says that the fiduciaries responsibilities are to

Section 1104 (a)(1)(B) of ERISA "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" and furthermore, section (C) "by diversifying the investments of the plan so as to minimize the risk of large losses ...."

I would be fried too if these people were knowledgeable and they left it in a savings account. Obviously there is not much risk of loss in a savings account but there sure is very little gain either, especially when people are planning on using this for their retirement.

With UAL we have a wide variety of 401(k) options and if I do a poor job of investing then that is my fault but my daughter has no options and it appears that the trustees did not perform their duties.

See the great response at post 2478.
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