In a decision published on my birthday earlier this month, the Sixth Circuit Court of Appeals found the potential for a breach of ERISA fiduciary duty where a company's summary plan description (SPD), which ERISA requires all companies to distribute to participants in their qualified retirement and 401(k) plans, incorporated by reference certain SEC filings, which filings were alleged to be inaccurate. Thus, the plaintiff's lawyers were able to add ERISA fiduciary duty claims to a lawsuit alleging inaccuracies in a company's SEC filings. (As I have said many times before in this blog, plaintiffs' lawyers can be clever. Their livelihood depends on dreaming up stuff like this.)

This is an important issue for every public company that makes available a company stock fund investment option in its 401(k) or retirement plan. This is relevant for executive compensation professionals and other readers of this blog because:

  • Many of us work on SEC filing documents, especially the proxy statement, and this mistake can convert an SEC filing that discusses the company's financial health (which is most of them) into a ERISA fiduciary communication;
  • Many readers handle qualified plan matters in addition to pure executive compensation;
  • Many executives (and even board members) serve as fiduciaries of their companies' qualified 401(k) and retirement plans (some unknowingly); and
  • ERISA provides for personal liability, and no one wants more liability.

I have blogged on this important issue before (see "Qualified Retirement Plan Warning," December 2008). Unfortunately, not everyone read the blogs or followed my advice – and now some are paying for it.

A qualified plan – such as a 401(k) plan – must provide plan participants with a form of Summary Plan Description (SPD), which meets the specific requirements set forth in ERISA. Additionally, a qualified plan that offers company stock as an investment must provide plan participants with certain information in the form of a 10(a) Prospectus. This is where some mistakenly reference the company's SEC filings. Instead, the 10(a) Prospectus – or "Statement of General Information" – should be a separate document, which incorporates the SPD by reference.

This is a subtle difference, but it better protects the Plan fiduciaries. The separate 10(a) Prospectus will refer to the SPD (the SPD will still include the legend on the inside cover page). (A third document constituting the required 10(a) Prospectus would be one with charts showing the three years of annual returns for each investment fund offered.)

On September 13, 1847, the U.S. Army won a significant victory over Mexican forces holding Chapultepec Castle west of Mexico City in the Battle of Chapultepec during the Mexican-American War. The efforts of the U.S. Marines in this battle and subsequent occupation of Mexico City are memorialized by the opening lines of the Marines' Hymn, "From the Halls of Montezuma..."