On August 14, 2014, in DiGeronimo Aggregates, LLC, Case No. 13-4389 (6th Cir. August 14, 2014), the Sixth Circuit Court of Appeals held that employers have no cause of action against multiemployer fund trustees for their negligent management of plan assets. Right or wrong, the decision is bad for employers and for the oversight of multiemployer funds generally.
DiGeronimo Aggregates was one of several employers impacted when the defendant Trustees terminated the Teamsters Local Union No. 293 Pension Plan (“Plan”) after substantially all of the participating employers had withdrawn. This triggered a mass withdrawal, subjecting DiGeronimo to $1.7 million in liability. DiGeronimo filed suit against the Trustees alleging their negligent management of Plan assets caused DiGeronimo harm in the form of increased withdrawal liability. Under ERISA Section 4301(a), 29 U.S.C. § 1451(a), DiGeronimo as an employer is entitled to bring an action for appropriate legal or equitable relief if it is adversely affected by the act or omission of any party under Subtitle E of ERISA (the multiemployer plan provision subtitle) with respect to a multiemployer plan. DiGeronimo and the Trustees agreed that Section 4301 was simply a “standing” provision, and that it conferred no substantive rights. DiGeronimo, however, asked the court to recognize a common law right of employers to bring negligence claims against trustees. The district court dismissed the claim, and DiGeronimo appealed.
The Sixth Circuit made short work of the claim, holding that DiGeronimo had no cause of action under the common law of ERISA for harm caused by the Trustees’ alleged negligent plan management. The Court first recognized that the parties agreed that Section 4301(a) “confers no substantive rights but simply identifies who can pursue a civil action to enforce the sections governing multiemployer plans.”
Turning to federal common law, the Court acknowledged that it has recognized common law claims in limited instances where: (1) ERISA is silent or ambiguous; (2) there is an awkward gap in the statutory scheme; or (3) federal common law is essential to the promotion of fundamental ERISA policies. Here the Court did not consider ERISA to be silent or ambiguous since ERISA provisions expressly address who can bring claims against trustees for what is basically a breach of fiduciary duties, and employers were not included. The Court did not see any awkward gap in the statute given trustees could still be held accountable for any mismanagement, it was just that participants and beneficiaries would make the claims — not employers. The Court presumed Congress deliberately omitted an employer remedy for mismanagement from the statutory scheme because the trustees’ plan management duties flow to participants and beneficiaries, not contributing employers.
Third, the Court found that imposing for the benefit of employers an enforceable duty of care upon trustees regarding plan management is not essential to the promotion of fundamental ERISA policies. The fundamental policy of ERISA (and according to the Court the Multiemployer Pension Plan Amendments Act (MPPAA)) is ensuring that private sector workers would receive pensions that employers promised them. The Court ended by noting it could find no case where a court has ever recognized the existence of a negligence claim in favor of contributing employers under the federal common law of pension plans.
DiGeronimo Aggregates is a disappointing decision for employers who participate in multiemployer plans and who are concerned as to how they are managed. In the Sixth Circuit, they have the option to withdraw from funds if they do not believe they are well-managed. Withdrawing employers then may challenge the assessment in arbitration. Even though the DiGeronimo Aggregates says nothing about the scope of withdrawal liability arbitration, the decision may lead to even more employers exiting multiemployer funds, further damaging the financial stability of those funds and further depriving employees of the opportunity to participate in defined benefit pension plans.
Was the Sixth Circuit right? An argument certainly can be made that employers should have a right to bring court actions against trustees. Congress’s civil enforcement provision, ERISA Section 502, which address the right of participants, fiduciaries, beneficiaries and the DOL to bring claims for breaches of fiduciary duties, was adopted long before the MPPAA and its withdrawal liability scheme was imposed. While Congress in theory could have amended Section 502, Congress likely never recognized or considered how negatively impacted participating employers would be by trustee negligence, or how that may impact the long term viability of the plans themselves.
There is a gap in the statutory scheme, and recognizing the right of employers — who have both a vested interest in well-run plans and the financial wherewithal to take legal action — to bring suit in court would help achieve one of the key goals of the MPPAA. As the Court recognized in another part of its decision, a key issue that led to the MPPAA was the problem of employer withdrawals, and how rising costs as a result of the diminished contribution base caused by withdrawals forced further withdrawals that could lead to the demise of pension plans. Granting employers the ability — as any other interested party — to sue in court to ensure plans are well-managed will improve the stability of those plans and eliminate the need for employers to withdraw.
Lastly, both parties agreed Section 4301(a) was only a standing provision and conferred no rights, but is that correct? The Court cited Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp., 522 U.S. 192, 202-03 (1997), but there the Supreme Court rejected an employer’s attempted use of Section 4301(a) to argue that the statute of limitations for collecting on withdrawal liability ran from the date the employer withdrew since a withdrawal “adversely affected” the Plan. The Supreme Court noted Section 4301(a) sets forth who may sue for a violation of the obligations established Subtitle E, and that it did not make an “adverse effect“ unlawful per se. Here, DiGeronimo basically was arguing the Trustees breached their fiduciary duties in managing plan assets. While DiGeronimo was impacted by that in the sense its withdrawal liability assessed under ERISA Subtitle E would be higher, the purported malfeasance was indirect and involved ERISA violations outside of Subtitle E. Employers who truly are more directly impacted by a plan’s actions or omissions over substantive provisions of Subtitle E, especially violations of those substantive provisions, may nonetheless have a cause of action to sue in court under Section 4301(a).
In the meantime, until a court rules otherwise, employers who are not satisfied with the management of their funds are left with withdrawing and arbitrating if they cannot convince the trustees to see the error of their ways.