In enforcing the Employee Retirement Income Security Act of 1974 (ERISA), the U.S. Department of Labor (DOL) has, for many years, focused considerable effort on recovering contributions that are due to an employee benefit plan, but which remain unpaid. The most common type of delinquent contribution is money withheld from 401(k) plan participants but not promptly credited to their accounts. A plan may also specify that contributions (such as matching contributions in a 401(k) plan, or required funding contributions to a pension plan) be made at a specified time.
In Field Assistance Bulletin 2008-01 (Bulletin), recently provided to its Regional Directors, the Employee Benefits Security Administration of the DOL made it clear that fiduciaries of plans subject to ERISA must identify who is responsible for the collection of delinquent contributions, and that such fiduciaries may be liable for plan losses which result from the failure to identify who is responsible.
Under ERISA, responsibility to control and manage the assets of a plan rests with the trustee or trustees of the plan, except to the extent the trustee is a “directed trustee” subject to the instructions of another plan fiduciary, or where an investment manager has been appointed to manage plan assets. The duty to manage and control plan assets includes the duty to collect contributions, because, according to the DOL, the failure to make a required contribution to the plan gives the plan a claim, which is itself a plan asset. The Bulletin indicates that the DOL has, in audits of plans, seen trust documents “which purport to relieve the financial institutions serving as plan trustees of any responsibility to monitor and collect delinquent contributions.”
In the Bulletin, the DOL states its view that the fiduciary who has the authority to appoint the plan’s trustee (this could be the employer, a plan committee or some other party, depending on the plan documents) must ensure that the duty to collect delinquent contributions is assigned to a trustee, a named fiduciary or an investment manager. Further, if this responsibility is not assigned, “the fiduciary with authority to hire the trustee may be liable for plan losses due to a failure to collect contributions.” An example of such losses would be investment gains that would have been made of amounts had they been invested in the plan.
By highlighting this issue in the Bulletin, the DOL has signaled that its agents will be looking at this issue in field audits of plans. Further, in what it deemed appropriate circumstances, the DOL might take enforcement action or litigate against plan fiduciaries who had failed to address this issue and arguably caused plan losses.
Plan sponsors and internal fiduciaries should examine their plan and trust documents, and consider what action may be required to address the issue of collecting delinquent contributions. Financial services organizations which serve as trustees of plans subject to ERISA may wish to review their documentation concerning their obligations concerning plan contributions, and anticipate questions about those provisions.