Maintain confidentiality with ERISA plans

The attorney-client privilege does not guarantee confidential communications. In fact, this privilege, under certain circumstances, may be subject to discovery down the road.

The purpose of the privilege is to encourage frank communications between attorneys and clients, which, in turn, promotes dissemination of sound legal advice. The fiduciary exception to the attorney-client privilege means fiduciaries who obtain legal advice in the execution of their fiduciary obligations are precluded from asserting the attorney-client privilege against their beneficiaries.

Courts extend fiduciary exception

Applying the fiduciary exception to the attorney-client privilege involves context and content. Proper analysis means consideration of whether the communication is related to the fiduciary functions of managing or administering the plan.

The fiduciary exception has been extended to third-parties, permitting them to assert the trustee-beneficiary exception when seeking to vindicate the rights of ERISA beneficiaries. For example, the government has been allowed to stand in the shoes of beneficiaries when investigating and prosecuting malfeasance in administering an ERISA fund.

Exceptions to the exception

When it comes to ERISA plans: the employer is a fiduciary to the extent it has discretion or exercises control over plan assets, but the employer is a non-fiduciary in its capacity as an employer setting up and establishing a plan for the benefit of its employees. Based in part upon the employer's dual roles, courts have generally recognized two exceptions to the fiduciary exception: settler exception and liability exception.

Under the settler exception, communications with legal counsel relating to the adoption, modification, or termination of an employee benefit plan are privileged. Amendment of a retirement plan is not a fiduciary function under ERISA. When an employer seeks legal counsel solely in its role as an employer regarding issues other than plan administration, the employer, and not the beneficiaries, is the client and the employer may legitimately assert the attorney-client privilege.

Under the liability exception, the attorney-client privilege is applicable when a fiduciary seeks the advice of counsel for his/her own personal defense in anticipation of adversarial proceedings with the plan beneficiaries. When an attorney advises a plan administrator or fiduciary concerning administration of the plan, the actual clients are generally the plan's beneficiaries, not the plan administrator. However, when an ERISA trustee retains counsel to prepare a defense in a dispute with the plan beneficiaries, the legal fiction that the trustee is acting in furtherance of the interests of the beneficiaries is dispelled and the attorney-client privilege remains intact. One of the key questions when determining whether particular attorney-client communication concerns a matter of plan administration or seeks legal advice for the fiduciary's benefit is whether the communication was made prior to or after the final decision to deny benefits.

Attorney-client privilege

As an ERISA fiduciary, what steps can you take to help ensure the confidentiality of your attorney-client communications? The most important step is to understand the law in your jurisdiction regarding the scope of the attorney-client privilege and the exceptions that may apply. Many fiduciaries learn about the fiduciary exception to the attorney client privilege the hard way. In other words, the absence of the privilege is often learned after the fact, after information has already been exchanged with the level of frankness that generally accompanies communications that are assumed to be confidential.

Once you understand the scope and limitations of the privilege and any applicable exceptions, any questions regarding your role and whether your communications on the subject at hand are privileged can be proactively discussed with your attorney as a threshold issue. In dealing with the matter proactively, you can take certain actions to enhance the likelihood that key communications will remain confidential and you can eliminate inappropriate references and non-essential information from your communications with counsel.