Corporate officers can wear two hats under ERISA: the corporate officer hat or the ERISA fiduciary hat. Actions taken wearing the corporate officer hat are traditionally not fiduciary functions.
The courts recognize that ERISA’s protections were not intended to apply to business decisions such as whether to adopt, merge or terminate plans or set the level of benefits. However, a recent decision from Florida, Perez v. Geopharma, Inc., crafted an interesting but flawed argument that mere authorization to sign on a corporate bank account could make an officer a fiduciary. It followed that the officer could be liable for fiduciary breach for not transmitting employee contributions from the account to the Geopharma Group Welfare Plan.
This decision could have a chilling effect on corporate officers routinely doing their jobs.
A major problem with this decision is that as a policy matter, officers need to know when they are assuming a fiduciary role and risking possible personal liability for their actions. There should be bright lines and officers shouldn’t learn only after the fact that they were fiduciaries. (For another example of a court extending fiduciary status retroactively to persons not thought to be fiduciaries, see my prior blog post, The Inadvertent Fiduciary.)
A second problem is that this officer had nothing to do with running the plan, and ERISA contemplates that a fiduciary (other than an investment adviser) is someone with discretion or control over plan administration or plan assets. This officer had neither in the common understanding of those terms simply because he was a signer on a corporate account, though the court accepted the Department of Labor’s argument that the unpaid employee contributions were plan assets. In fact, since it required two signatures to act for the account, this officer was unable to unilaterally even direct the contributions.
Basis for the Lower Court Decision.
The lower court rejected a motion to dismiss, claiming that the unpaid contributions were plan assets in the corporate bank account, and that those with signatory authority over the account were co-fiduciaries with control over plan assets because they controlled the account. The court claimed to be following an earlier 11th Circuit decision, but in fact its decision was not required by the 11th Circuit decision and conflicts with decisions in other circuits on unpaid plan contributions.
This lower court’s decision should not be applied to employer contributions. Most authority holds that employer contributions are not plan assets until contributed to the plan unless an agreement between an employer and the plan indicates otherwise (which would be unusual). For example, in July, a federal district court in Michigan declined to find that corporate officers of a troubled company acted as fiduciaries when they prioritized the other company obligations over unpaid plan contributions. Further, even the U.S. Department of Labor set out the general rule that unpaid employer contributions are not plan assets in Field Assistance Bulletin 2008-1.
Are Other Remedies Available?
With respect to employee contributions, if there is no plan committee but the plan says simply that “the Company” is the administrator, it may be reasonable to hold Board members or officers who have the most connection with the plan responsible, rather than to assign fiduciary status simply on the basis of co-signing authority.
The better analysis seems to be that the plan has a breach of contract claim against the company for unpaid employer contributions. In the case of multi-employer plan contributions, Section 515 of ERISA even establishes a specific cause of action for unpaid contributions. These alternatives may have influenced the many decisions declining to find corporate officers liable for unpaid contributions under ERISA’s general fiduciary liability rules.
It remains to be seen whether the Geopharma decision will be appealed or other courts will follow it, but if they appreciate the risk the Geopharma decision imposes on ordinary corporate officers, they will not do so. In the words of the 11th Circuit Court of Appeals, from the same decision cited by the Geopharma court: “Preservation of the purposes of ERISA does not require that we ambush corporate officers with stringent fiduciary duties and personal liability…”