ERISA-The Obligation To Collect Employer Contributions-Potential Liability For Trustees

Many plans subject to ERISA have an independent, third party trustee. Typically, this trustee holds the plan’s assets pursuant to a trust agreement, entered into between the trustee and the employer. Almost as a matter of routine, the plan and/or the trust agreement will have language to the effect that “the trustee is not responsible for collecting any contribution which the employer is required to make to the plan”. With this language in the plan and/or the trust agreement, the trustee would think that it is absolved from any obligation to collect employer contributions. But, is that so, after Solis v. Plan Benefit Service, Inc., No. 07-11474-DPW (D. Mass. 2009) (“Solis”)?

In Solis, the Secretary of the Department of Labor (the “Secretary”) brought an action against Plan Benefit Services, Inc. (“PBS”), which served as the plan sponsor and recordkeeper under the Contractors and Employees Retirement Plan (the “Master Plan”), and its accompanying trust, called the Contractors and Employees Retirement Plan Master Trust (the “Master Trust”).Various employers had established plans and trusts, through the Master Plan and the Master Trust, that provide retirement benefits to employees working under certain public contracts. The Secretary alleged, among other matters, that a provisions in the Master Plan and the Master Trust, which relieve the trustee from the obligation to collect employer contributions, is void as against public policy. As plan sponsor, PBS is responsible for maintaining and amending the language in the Master Plan and the Master Trust.

In analyzing the Secretary’s allegation, the court looked at two sections of ERISA: (1) Section 403 of ERISA, which states (with certain exceptions not applicable here) that all assets of a plan must be held in trust, and that the trustee has exclusive authority and discretion over the management of the plan’s assets and (2) Section 410 of ERISA, which states that any provision of a plan or trust that relieves a fiduciary of its responsibilities is void as against public policy. The court opined that a plan’s assets include the right to collect unpaid employer contributions, so that a provision eliminating trustee responsibility for collecting employer contributions does not comply with Section 403. Further, the provisions of the Master Plan and the Master Trust relieving the trustee of responsibility for collecting employer contributions violate Section 410 as being void against public policy, since these provisions determine that ultimately the right of collection will not be held in trust, thereby relieving the Trustee of its responsibilities under Section 403.

Interestingly, after concluding as it did, the court admonished the Secretary for attempting to do through this case what she has been unwilling to do under her rule-making authority, namely, effectively requiring all ERISA master plans and trust agreements to recognize the trustees’ obligation to collect employer contributions. The court noted that its decision leaves a number of questions unanswered, for example, when an employer is delinquent in remitting contributions, how rapidly must the trustee move to commence recovery efforts, and when may the trustee exercise discretion to abandon claims which have the prospect of only limited recovery? In concluding, the court indicated that it is now up to the Secretary to address these questions by rule making.

Given the prevalence of provisions in plans and trust agreements which absolve a trustee from responsibility for collecting employer contributions, coupled with the court’s own insistence that the Secretary now take up the treatment of these provisions through its rule making authority, this one district court case probably does not yet void all such provisions. Yet, it does increase a trustee’s risk of incurring liability for failing to collect employer contributions, even when the trustee thought it was safe from such liability due to provisions in the plan and/or trust agreement relieving it from collection responsibility. Consequently, trustees may want to review this case with counsel to determine what other plan and/or trust agreement provisions, and what indemnification agreements and fiduciary insurance, might help to reduce their liability for the failure to collect employer contributions.

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