When I was in law school, I vaguely remember learning about "springing" interests. They pop up when some event occurs that creates some claim to the property or trust. Well, in some instances, fiduciary status can spring up based on whether you actually exercise discretion over plan assets. In other words, you might not intend to be a fiduciary, but as soon as you exercise discretion, you are one.
Consider the recent decision in Borroughs Corp. v. Blue Cross Blue Shield of Michigan. In this case, the plan was self-funded and Blue Cross was acting as the TPA under a service agreement. The service agreements with Blue Cross provided that the amounts sent each month to pay benefits were specifically NOT plan assets. Unbeknownst to the plan, Blue Cross was taking a little bit of the money each month as a service fee so the plan sued for breach of fiduciary duty. First, the Court said that even though the contract said otherwise, the amounts transferred were plan assets. You could not contract away the fact that the money coming from the plan to pay benefits is a plan asset. Then the court held that because Blue Cross exercised discretionary authority over those assets (meaning it decided to take a little as a fee), it was a fiduciary. Finally, the court concluded that using plan assets to pay yourself a fee that only you determine and know about is a prohibited transaction and a breach of fiduciary duty.
The fiduciary status sprung from the possession of plan assets and the use of discretionary authority. The same thing can happen to anyone that comes into possessions of assets of a plan if they begin exercising discretionary authority. For example, a lawyer that has money from a plan in an escrow account to be used to pay a settlement is in possession of plan assets. If he or she just distributes it as directed by the plan, no exercise of discretionary authority and no fiduciary status. The assets are still plan assets, but the non-exercise of discretion eliminates the fiduciary status. But if the lawyer takes some money out of the account for any purpose other than what the plan directs, then there is an exercise of discretion and fiduciary status springs to life.
This is why it is very important for plan sponsors, plan employees and plan service providers to be keenly aware of the actions they are taking when they have plan assets under their control. If you act with direction from a fiduciary without your own discretion, you tend to stay away from fiduciary status. But if you start to make decisions related to the distribution of those assets, fiduciary status springs upon you. So it is always important to know (1) if you are dealing with plan assets and (2) are you exercising authority over those assets. Being aware of these two things is the first step in avoiding having fiduciary status arise unexpectedly. And if you have questions about your status or whether you are dealing with plan assets, ask for assistance from your attorneys at Fox Rothschild.