Citibank has received a “groundbreaking Advisory Opinion” from the Department of Labor confirming that Citibank’s conduct in connection with its Diverse Asset Manager Program and the ERISA plans it sponsors is settlor in nature and not subject to ERISA’s fiduciary duties.
The law firm Thompson Hine LLP announced via a press release today that it had received Advisory Opinion 2023-01A, which was issued by DOL on September 29, 2023. The Opinion letter was in response to Thompson Hine’s request on behalf of Citigroup Inc. and its affiliates for the Department of Labor’s views on the application of certain fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act (ERISA) to Citi’s Action for Racial Equity Asset Manager Program.
Under this voluntary program, which is part of Citibank’s larger Action for Racial Equity (ARE) designed to address the “racial wealth gap” affecting the business environment in which Citibank operates, Citibank commits to pay all or part of the fees of diverse asset managers for the ERISA plans it sponsors.
“The beauty of this opinion is that it effectively says that for those plan sponsors that wish to make use of this type of program, ERISA won’t stand in the way”
Thompson Hine Partner Dominic DeMatties
The Opinion Letter is groundbreaking in that it is the first time DOL has opined on how much latitude a plan sponsor has in matters of plan design that include decisions regarding which plan-related fees it will (or will not) pay, and it provides explicit guidance regarding how to structure a program based on the plan sponsor’s corporate interests in a manner that avoids application of ERISA’s fiduciary rules to that program.
The Opinion provides a road map for how a plan sponsor may voluntarily establish a program under which it pays expenses for diverse investment managers without its conduct being considered fiduciary in nature, Thompson Hine said in its release. The practical effect of the Opinion is to provide more concrete guidance to plan sponsors regarding the extent to which they can exercise discretion in plan design in a settlor capacity. To this end, the Opinion prescribes certain safeguards to assure that Citibank’s actions with respect to the program are considered settlor and that a plan fiduciary’s consideration of the program in its investment management decisions is consistent with ERISA and not subject to a conflict of interest.
“The beauty of this opinion is that it effectively says that for those plan sponsors that wish to make use of this type of program, ERISA won’t stand in the way, and for those who don’t want to make use of this program, it is entirely voluntary with no mandates or requirements,” said Thompson Hine Partner Dominic DeMatties.
The logic of the Opinion is based on the core principle long recognized by DOL that plan sponsors retain discretion, in a settlor capacity, to design the plans they sponsor based on their own interests (subject to ERISA’s substantive requirements), including whether and to what extent plan expenses are paid by the plan sponsor rather than from plan assets and that such determinations are not constrained by or otherwise subject to ERISA fiduciary rules.
SEE ALSO:
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