After six months of review, on August 20, 2002 the U.S. Department of Labor issued an Advisory Opinion on whether, and under what circumstances, pension plan trustees can agree not to sue their plan actuaries for damages caused to the plan by actuarial malpractice.

The Central Pension Fund of the International Union of Operating Engineers and Participating Employers had filed a request for the Advisory Opinion in February of this year when it became clear that the Fund's existing actuarial firm, as well as several other large national actuarial firms, had begun to demand that their pension plan clients agree to assume liability for any damages caused to the plans by actuary malpractice (in excess of the annual fee paid to the actuary by the plan).

Agreeing to such limitations can mean that the trustees are accepting responsibility for potentially millions of dollars in losses to the plan.

When the Central Pension Fund's Trustees were presented with this demand by their actuarial firm, they voted to immediately replace the firm, and seek legal guidance from the Department of Labor on whether such liability-shifting clauses are legal.

In the August 20 Advisory Opinion, the Department of Labor responded that while ERISA, the federal pension law, does not expressly prohibit such clauses, any trustees presented with a demand for them have a fiduciary duty to seek the services of a comparable actuarial firm that does not require such clauses.

The Department of Labor went on to further require that trustees presented with such liability-shifting clauses also have a duty to conduct an assessment of the potential losses that their plans could suffer if they were to agree to such clauses.

The Department of Labor has now made it clear that trustees carry a very heavy burden when presented with proposals that they accept liability for damage done to the plan by their actuaries.

In the face of the Department of Labor's guidance on this issue, it is expected that the actuarial firms serving our plans will drop these demands. If not, plan trustees will have to find competent actuaries who are willing to stand behind their professional work.