Court Rules Plan Has Duty to Collect Delinquent Contributions
Copyright 2009 National Underwriters Company All Rights Reserved Tax Facts News
August 2009
QUALIFIED PLANS; Pg. 2
578 words
Court Rules Plan Has Duty to Collect Delinquent Contributions
Unpaid contributions are plan assets
A District Court in Massachusetts has upheld the Department of Labor's (DOL's) position that a claim to contributions is a plan asset that must be held in trust. The court ruled that a provision in a plan document stating that the institutional trustee was not responsible for monitoring or collecting delinquent contributions was void as a matter of public policy because it violated ERISA's requirement that plan assets be held in trust. The court did not find, however, that the master plan sponsor had breached its fiduciary duties of care by adopting such a provision, as it found that the sponsor did not act as a fiduciary in drafting the plan provision.
The DOL initially brought this case against Linskey Company, which had adopted the Contractors and Employees Retirement Plan and Trust (the Contractors Plan). This plan was a master plan and trust sponsored by Plan Benefit Services, Inc. (PBS). In the course of a routine investigation, the EBSA discovered that Linskey was delinquent in making contributions to the Plan.
The Contractors Plan covers more than 1,100 employers. Each employer established a stand-alone 401(k) plan when it signed the adoption agreement. Each employer is the named plan administrator in the Contractors Plan document and, in its plan administrator role, chooses where to invest the assets of its plan among insurance group annuity contract options made available by the master trust trustee. The participants generally direct the investments of their accounts within the group annuity contracts in the arrangement. The trust company acts primarily as a custodian of the funds and has no investment discretion.
The plan language the DOL attacked in this case is common in prototype and master plan documents governing relationships with institutional trustees, and the language has been the industry standard for more than 40 years. Like most plans of this type, the Trust Agreement provided:
The Trustee shall be accountable for all contributions received by it, but shall have no duty to require any contributions to be made to it, or to determine that the amount received comply with the Plan, or to determine that the fund is adequate to provide the benefits payable pursuant to the Plan.
The Contractors Plan document had similar language.
In finding that these provisions are contrary to ERISA, the court found that the right to unpaid contributions is a property right and therefore a plan asset. Because ERISA requires the trustee to retain plan assets in trust, the court determined that the trustee has an obligation to enforce these collection rights. In particular, the court found that ERISA affirmatively requires the trustee "to monitor and collect the employer contributions to ERISA funds."
The court noted at the end of its decision that the case raises significant administrative issues. How rapidly must the trustee move to commence recovery efforts? And when may the trustee exercise discretion to abandon claims presenting the prospect of limited recovery? The court also said that if there is no guidance on these types of issues, institutional trustees may significantly increase their prices or to withdraw these types of services entirely. "Providing a proper balance through rulemaking is now an obligation of the Secretary, lest prevailing on this case be a Pyrrhic victory in the battle to provide serviceable and affordable pension plan administration for those employed by relatively small employers." JFS
September 2, 2009
NAIFA-Florida Installs New Leaders; Bridges Leads LIG Texas Office
Advisor News
Annuity News
Health/Employee Benefits News
Property and Casualty News