Two Hats, One Head, No Heart: The Anatomy of the ERISA Settlor/Fiduciary Distinction

93 Pages Posted: 19 Apr 2014 Last revised: 30 Jan 2015

See all articles by Dana M. Muir

Dana M. Muir

University of Michigan - Stephen M. Ross School of Business

Norman P. Stein

University of Alabama - School of Law; Vermont Law School

Date Written: January 1, 2015

Abstract

ERISA, the comprehensive employee benefits reform statute, created a strict fiduciary standard for those involved in the administration or management of employee benefit plans or their assets, a standard that requires such actors to make decisions solely in the interests of the plan’s participants and their beneficiaries. The courts, however, have held that employer decisions on whether to adopt or terminate a plan, or how to design the provisions of a plan, are plan “settlor” functions, akin to a grantor’s design of a trust under the common law, and thus not subject to ERISA’s fiduciary duties. While the settlor/fiduciary doctrine has worked well and is not controversial in routine cases, the article shows that the doctrine has permitted employers in some cases to bypass express and implied ERISA requirements through artful plan drafting and, perhaps more troubling, has also permitted employers to exploit ERISA’s broad preemption of state law to insulate plans actions from judicial or state legislative oversight, even in areas where there is broad national consensus, such as limits on claim subrogation and liability for negligent medical decision-making. The article suggests three limiting principles that courts could use to provide a more nuanced approach to balancing employer and employee interests in and related to ERISA plans. These principles would leave intact the core of the doctrine while mitigating its most troubling effects.

Keywords: fiduciary, ERISA, pensions, health care, 401(k), employment

JEL Classification: J31

Suggested Citation

Muir, Dana M. and Stein, Norman P., Two Hats, One Head, No Heart: The Anatomy of the ERISA Settlor/Fiduciary Distinction (January 1, 2015). North Carolina Law Review, Vol. 93; Ross School of Business Paper No. 1233. Available at SSRN: https://ssrn.com/abstract=2426519

Dana M. Muir (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
313-763-3091 (Phone)
313-936-8715 (Fax)

Norman P. Stein

University of Alabama - School of Law ( email )

P.O. Box 870382
Tuscaloosa, AL 35487
United States
205-348-1136 (Phone)
205-348-1144 (Fax)

Vermont Law School

68 North Windsor Street
P.O. Box 60
South Royalton, VT 05068
United States

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