Last week we discussed the issues with Advancing Defense Costs under Corporate Indemnification Agreements and how Corporate Indemnification may be Limited to Amount Covered by Fiduciary Insurance. Case Imperils Rights of ERISA Fiduciaries discusses the "troubling decision" handed down in Johnson v. Couturier, 2008 WL 4443085 (E.D. Cal. Sept. 26, 2008) and how the case is "likely to create uncertainty and disincentives for institutional trustees and other entities and individuals who serve as fiduciaries of ESOPs and other employee benefit plans more generally." It explores the details of the case and a friend-of-the-court brief filed by a group of professional ESOP fiduciaries:

The ESOP fiduciaries advanced a number of arguments, including that the DOL's own authorities have for decades allowed the advancement of attorney's fees under circumstances like those in Couturier. The ESOP consortium also argued that as a matter of public policy, preventing companies from advancing attorney's fees to fiduciaries in the event of litigation would create a severe disincentive for anyone considering serving as a fiduciary, and thus have a chilling effect on our nation's retirement system.

The ESOP consortium also argued that contrary to the court's holding, ESOP participants do not have an equitable interest in a company's underlying assets. Specifically, DOL regulations since 1986 have held that an ESOP does not own the underlying assets of a company, even if it owns all of the company's stock. The DOL regulations acknowledge that it would be extremely difficult for officers and directors to manage all of the assets of a company – potentially everything down to the mailroom supplies – in accordance with the exacting fiduciary responsibility rules of ERISA. To impose such a strict requirement, the DOL regulations reason, could disrupt the normal functioning of any business that was wholly owned by an ESOP.

Another issue is that fiduciaries have relied for decades upon various legal authorizes who hold that the advancement of fees is permissible under ERISA because it does not impermissibly relieve a fiduciary of legal responsibility or liability.

The article also shares some steps that fiduciaries should take to protect themselves:

First, fiduciaries should reassess whether the fees charged for their services are commensurate with the risk of litigation. As shown in the Couturier case, the cost of fiduciary litigation can be substantial and in many cases will far outweigh whatever fees the fiduciary has earned from service to the ESOP. Second, and of equal importance, fiduciaries should ensure that adequate insurance coverage is in place in the event that their contractual indemnification agreements do no pass muster with a court. Had the insurance coverage protecting the Coururier fiduciaries been more extensive, the issue of attorney's fees advancement from the plan sponsor might not ever have arisen.

Ninth Circuit: In ESOP Setting, ERISA Fiduciary Law May Apply to Decisions Related to Corporate Salaries discusses the conflicts that ERISA fiduciaries face when wearing both a corporate hat and a fiduciary hat and the recent Ninth Circuit ruling that held that decisions should be subject to ERISA when the fiduciaries stand to "directly profit" from the decisions.