The Ninth Circuit recently held that a multiemployer pension plan (MEP) cannot label unpaid contributions as “plan assets” so as to impose ERISA fiduciary status on persons controlling the payment of employer contributions to the plan. In Bos v. Board of Trustees, No. 13-15604, 2015 U.S. App. LEXIS 13272 (9th Cir. July 30, 2015), the court rejected the reasoning of the Second and Eleventh circuits, which have held that unpaid MEP contributions can be plan assets if the plan documents expressly define plan assets to include unpaid contractually required contributions.

Liabilities Increase If Unpaid MEP Contributions Are Plan Assets

Employers do not become ERISA plan sponsors or fiduciaries merely by contributing to MEPs. In general, unpaid contributions by employers to MEPs are not plan assets. See, e.g.,Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir. 2000), cited in Bos. In Field Assistance Bulletin 2008-1, the Department of Labor reiterated its position that an employer contribution becomes an asset of a plan only when the contribution has been made. However, the Second and Eleventh circuits recognize an exception to this general rule where the plan documents expressly define the fund to include future unpaid contributions by employers.Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182 (2nd Cir. 2015); ITPE Pension Fund v. Hall, 334 F.3d 1011 (11th Cir. 2003). In concluding that unpaid contributions can be plan assets at the time of nonpayment, the Second and Eleventh circuits have treated employers – who control the money contractually owed to the MEP – as MEP fiduciaries. Section 3(21) of ERISA defines a fiduciary to include any individual who “exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets.”

Many MEP plan documents broadly define “plan assets” to include all contributions required to be made to the MEP, including any unpaid contributions. In claims for unpaid contributions, MEPs frequently argue that contributing employers, and executives who control company finances, are ERISA fiduciaries as to the unpaid contributions. A court ruling that unpaid contributions are plan assets can thus create fiduciary liability for company executives as well as the company. In bankruptcy, such a ruling may make the unpaid contributions a non-dischargeable debt under Section 523(a)(4) of the Bankruptcy Code, which provides that debtors may not discharge debts incurred due to the debtor’s “fraud or defalcation while acting in a fiduciary capacity.”

In contrast to the Second and Eleventh circuits, the Sixth and Tenth circuits have declined to apply this exception. Board of Trustees of Ohio Carpenters’ Pension Fund v. Bucci (In re Bucci), 493 F.3d 635 (6th Cir. 2007); Navarre v. Luna (In re Luna), 406 F.3d 1192 (10th Cir. 2005).

Bos Holds that MEP Documents Cannot Make Unpaid Contributions Plan Assets

Gregory Bos (Bos) was the owner and president of Bos Enterprises, Inc. (BEI). He personally controlled BEI’s finances as well as BEI’s payments to the MEPs in which BEI participated. After Bos filed a Chapter 7 bankruptcy petition in his individual capacity, the MEPs objected that $504,282.59 in unpaid MEP contributions owed by BEI was an obligation of Bos’ that could not be discharged under Section 523(a)(4) as a debt incurred, due to Bos’ breach of fiduciary duty in failing to direct BEI to make these payments to the MEP.

Because the trust agreements for the MEPs defined plan assets to include contributions “required ... to be made” to the respective MEPs, the bankruptcy court and district court ruled that BEI’s unpaid contributions were plan assets and that Bos was an ERISA fiduciary because he had controlled BEI’s finances.

On appeal, the Ninth Circuit reversed and remanded the case, holding that MEP plan documents could not make unpaid contributions plan assets, thus following the Sixth and Tenth circuits. The Ninth Circuit reasoned that an employer does not control an MEP’s right to enforce payment of any delinquent contributions and thus concluded that Bos lacked the requisite authority to be a fiduciary. The court of appeals therefore reversed the district court and remanded the case with direction that the debt to the MEPs should be discharged.

What Is the Significance of Bos?

Bos is a well-reasoned decision that will help employers and executives facing MEP claims for breach of fiduciary duty in failing to pay MEP contributions. Although Bos applies only in the Ninth Circuit, it might be considered persuasive in those circuits that have not yet considered whether unpaid MEP contributions can be plan assets if so provided in the plan documents. Disputes over what contributions are properly due are increasingly common, as MEPs often claim contributions over and above those which the company and the union have treated as appropriate. MEPs regularly use threats of fiduciary breach to intimidate employers into paying disputed amounts.

The Bos decision also deepens the split among the circuits as to whether MEPs can classify unpaid contributions as plan assets so as to impose fiduciary status upon contributing employers and possibly certain of their executives. Because of the circuit split, future Supreme Court review is possible. We will provide WorkCite updates discussing developments in this important issue.