Case Study: Lead Industry to initiative to obtain ruling from Dept. of Labor limiting duties of Directed Trustees.

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In the wake of the massive Enron fraud, the Department of Labor sided with private claimants to hold the directed trustee of Enron’s company stock fund liable for failing to take independent action to prevent losses to plan participants—a position which alarmed the industry, and lead to a rash of “stock-drop” cases against banks acting as directed trustees of Company Stock Plans. Custody banks serving as directed trustees had never thought that they had accepted fiduciary duties to over-see plan sponsor activities or to act proactively to protect plan participants when company stock funds were jeopardized by a company’s weakened financial condition.

Solution Provided:

Working with both the ABA and major Washington firm, I assembled and worked with industry representatives to develop the industry position and was a principle industry spokesperson in discussions with the Department of Labor.


The ramifications of the Enron decision on directed trustees were nullified. The DOL issued Field Assistance Bulletin 2004-3 on directed trustee duties, which, while requiring directed trustees to have procedures in place to avoid prohibited transactions, established an extremely high threshold before a directed trustee has a potential duty to raise issues to the attention of a plan’s named fiduciary.

Category : Case Studies