Citibank received a “groundbreaking Advisory Opinion” from the Department of Labor (DOL) regarding its Diverse Asset Manager Program and the ERISA plans it sponsors.
More specifically, the law firm Thompson Hine said it secured Advisory Opinion 2023-01A on Citibank’s behalf. The DOL issued the opinion on September 29, 2023. It confirms 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.
Under the 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.
“It’s substantive and not something I recall seeing guidance about previously—framed this way,” American Retirement Association Chief Legal Officer Allison Wielobob said. “It’s dense and concerns the potential fiduciary implications of a Citigroup program in which Citigroup pays all or some portion of the investment management fees for certain managers retained by Citi-sponsored employee benefit plans. However, the Department relies on a bundle of prior opinions in reaching its conclusions. In other words, there’s plenty of foundation.”
The opinion provides what Thompson Hine calls 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.
“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,” it said. “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.”
Thompson Hine added that 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.
“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,” Thompson Hine partner Dominic DeMatties said in a statement.
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.
