Fiduciary Duty: Critical Legal Thinking Case

Fiduciary Duty
Fiduciary Duty

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Fiduciary Duty

Critical Legal Thinking Cases

ERISA

In this case, trustees to the United Pension Fund (Plan) took advantage of their position to administer loans to themselves without any written applications, specified interest rates or repayment periods. The trustees were sued by the secretary of labor for breaching fiduciary duty.

The court ruled out that the trustees did not act prudently because they failed to ask for evidence of ability to repay, charge fair interest rates, enter into written agreements and demanding repayment once loans were due;  as provided by 29 U.S.C.  § 1104(a)(1)(B)

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This case definitely affects businesses in the United States because it cautions on the management and investment of employee pension. The case insinuates that businesses have the duty to protect employees’ pension plans. Any kind of loans given to parties of interest should be available to all participants of the plan on reasonably equivalent terms and at reasonable interest rates.

The worst case scenario in this case is that the trustees would be found guilty of breaching fiduciary duty and misusing their position to obtain unreasonable loans. The best case scenario would be for the trustees to be acquitted of the charges based on Texas usury statute which prohibits attaching interest rates which are greater than 10 percent.

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