With the economy in a tail-spin, it is likely that employers who are in financial difficulties may find themselves struggling to meet their contribution promises under their ERISA plans. A recent federal district court case in Massachusetts puts the spotlight on this whole issue and should garner some concern for those who serve in the fiduciary function for a troubled plan.
In the case of Hilda Solis v. Plan Benefit Services, Inc.(“PBS”) (posted by McKay Hochman), the district court dealt with the following factual scenario:
The DOL had sued a construction company and Master Plan sponsor alleging violations of fiduciary duty. The DOL had investigated the Master Plan due to the failure of the construction company to make certain promised contributions to the Master Plan for work performed by its employees. On a motion for summary judgment, the DOL asked the court to rule on two claims: (1) That the Master Plan sponsor had violated its fiduciary duties under ERISA because it had “relieved the Trustee of responsibilities for collection of employee contributions” and (2) that a plan provision written into the Master Plan document relieving the Trustee of responsibility for collection of employee contributions was “void as against public policy pursuant to [ERISA] Section 410.”
The DOL had relied on Field Assistance Bulletin No. 2008-01 (which the defendant in the case argued the DOL had issued targeting the facts of the case at hand). In the FAB, the DOL answered the following question: “What are the responsibilities of named fiduciaries and trustees of ERISA-covered plans for the collection of delinquent employer and employee contributions?” The answer given by the DOL in a nutshell was that, when contributions are “due and owing to the plan under the documents and instruments governing the plan but have not been transmitted to the plan in a timely manner,” the plan has a claim against the employer for the contribution and the claim becomes an “asset of the plan” which the appropriate fiduciary is bound under ERISA to collect. The FAB also provides that, if the documents are “fuzzy” about who has this responsibility to collect delinquent contributions, then the responsibility under the DOL’s view ultimately gets pinned on the fiduciary who has “the authority to hire and monitor trustees.”
The federal district court agreed with the DOL in the PBS case that “plan assets include the right to collect unpaid employer contributions” relying on a Tenth Circuit case–In re Luna, 406 F.3d 1192 (10th Cir. 2005) and a Second Circuit case–United States v. LaBarbara, 129 F.3d 81 (2d Cir. 1997). While the Master Plan sponsor had argued that these cases were not pertinent since they were Taft-Hartley plans subject to collective bargaining agreements, the court disagreed and, in light of its ruling, that “due and owing” unpaid employer contributions are “plan assets”, the court then held that the Master Plan’s provisions eliminating Trustee responsibility for the collection of the employer contributions did not comply with ERISA and therefore were “void as against public policy.”
However, the court declined to go so far as saying that the Master Plan sponsor had violated its fiduciary duty in relieving the Trustees of responsibility for collection of employer contributions through the adoption of the violative language.
The court appears to have departed from the DOL’s views established under the FAB that fiduciaries who have authority to hire and monitor trustees under an ERISA plan have the ultimate responsibility for overseeing the collection of unpaid employer contributions. Even though in the PBS case, PBS had the power “to appoint and to remove the Trustee,” Judge Woodlock who wrote the opinion concluded:
I have found no case that addresses whether under these circumstances, based on its power to remove the Trustee, PBS is acting in its fiduciary capacity and is therefore subject to fiduciary liability. Nor am I persuaded that the power to remove the Trustee is sufficiently tied to a decision regarding Trustee responsibilities such that PBS is acting as a fiduciary when it designs the plan structure in this way. I therefore conclude that PBS’s fiduciary liability, if it exists, cannot be based on its power of Trustee appointment and removal.
Conclusion: It is likely that there are quite a number of documents out there that will be found to have the same exculpatory language noted in the PBS case. Trustees and fiduciaries of ERISA plans should review their plans and consult with their advisors as to whether such provisions should be removed and, if faced with the dilemma of delinquent employer contributions, determine what action is appropriate in light of the DOL’s views expressed in its FAB as well as recent governing case law.