California Employee Benefit Plan Trustees and Compensation


Section 317 of the California Corporations Code permits, limits, and in one circumstance even mandates the indemnification of a person because the person is, or was, an “agent” of the corporation. The law defines “agent” as “any person who is or was a director, officer, employee or other agent of the company, or who is or served at the request of the company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the company or of another company at the request of the replaced company”.

Corporate officers and employees often serve as trustees under a company’s employee benefit plan. From the description above, it is not clear that Section 317 governs the compensation of such persons when serving as such. In fact, section 317 does not apply. Subdivision (j) of the Act states: “This section [317] does not apply to any action brought against a trustee, investment manager or other trustee of a benefit plan in his capacity as such, even though such person may also be an agent within the meaning of sub -section (a) of the employing company”.

This does not mean that California General Corporation Law prohibits indemnification of persons serving as trustees under a corporation’s employee benefit plans. Subdivision (j) also provides “A company has the power to indemnify such trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 207”. Section 207(f) provides that a corporation includes, but is not limited to, the power to:

Pay pensions and establish and operate pension, profit sharing, stock bonus, stock purchase, stock option, savings, savings and other retirement plans , incentive and benefits, trusts and retainers for all or any of the directors, officers, and employees of the company or any of its subsidiaries or affiliates, and to indemnify and purchase and to maintain insurance on behalf of any fiduciaries of such plans, trusts or arrangements.

The only limitations imposed by Section 207 are limitations imposed by the articles of association and compliance with other provisions of the GCL and “other applicable law”. One of the other applicable laws is probably the Employees Retirement Income Security Act of 1974 (ERISA). Therefore, questions regarding the indemnification of employee benefit plan trustees may require the advice of a practitioner familiar with ERISA.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 244

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