What's your fiduciary liability IQ? If it needs to be raised, and it probably does, just follow these steps.

• Author: Dart, Christine
• Position: RISK MATTERS

CALL IT a ripple effect of America's economic slump. Companies are facing increasing risk of fiduciary liability lawsuits from disenchanted employees who are seeing their retirement benefits diminished, their employer matching contributions eliminated, or their benefits reduced or terminated.

If the overall economic impact on investment returns isn't enough to make plaintiff attorneys cheer, regulatory and legal changes have also helped land today's fiduciaries in the hot seat. Changes in the laws governing employee benefit plans such as the Employee Retirement Income Security Act (ERISA), the Pension Protection Act of 2006, the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Health Insurance Portability and Accountability Act (HIPAA), make it even more challenging for fiduciaries to navigate. In addition, the U.S. Supreme Court ruling in 2008 in LaRue v. DeWolf makes it easier for current and former employees to sue fiduciaries.

Despite the increased exposure, fiduciary liability is often a misunderstood risk for boards in some small to midsize firms. Boards that are responsible for appointing ERISA fiduciaries to oversee their companies' benefit plans are also responsible for monitoring those appointed to serve in that capacity. If board members fail in these responsibilities, they can be held personally liable if a court finds them in violation of their fiduciary trust. Directors and officers should take steps to minimize their exposure and improve their ability to defend themselves in the event of a lawsuit.

The increased exposure comes from many sources. In recent years more employees and former employees have filed lawsuits alleging the plan fiduciaries breached their duty under ERISA by offering employer securities in the plan, failing to diversify plan assets, calculating benefits incorrectly, wrongfully terminating a plan, or failing to disclose revenue-sharing arrangements and excessive fees.

Sometimes lawsuits arise when a company conducts a series of voluntary employee layoffs. If during the latter part of the layoffs, the company enhances the benefit level to encourage employees to leave, the company could be liable for claims alleging it knew it would initiate a series of layoffs over time and that the subsequent layoffs would come with enhanced benefits. Employee layoffs can also increase exposure to "breach of fiduciary duty" allegations concerning severance or pension benefit calculations, including ERISA...