ERISA-Fourth Circuit Upholds District Court’s Grant of Authority To An Independent Fiduciary To Terminate A Pension Plan

Can a court grant a plan fiduciary the authority to terminate a pension plan? The Fourth Circuit says yes.

In Solis v. Malkani, Nos. 09-1383, 10-1061 (4th Cir. 2011) (unpublished opinion), the defendants had asked the Court to review, among other matters, whether the district court abused its discretion by granting an independent fiduciary the authority to terminate a pension plan (in this case a defined contribution, profit sharing plan). An independent fiduciary had been appointed to administer the pension plan, since the plan had a history of mismanagement and having its funds misused. The Court answered the question as follows:

The Court said that a federal court enforcing fiduciary obligations under ERISA is given broad equitable powers to implement its remedial decrees. These necessarily include the power to order the termination of a plan. The Court further noted that § 1109(a) of ERISA provides that any person who is a fiduciary with respect to a plan, and who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by ERISA, is subject to such equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. 29 U.S.C. § 1109(a). In cases initiated by the Secretary of Labor (as here), a court is further authorized to provide other “appropriate relief” where necessary. 29 U.S.C. §§ 1132(a)(2), 1132(a)(5). Thus, the Court concluded that, in certain narrow circumstances, it is wholly appropriate for a court to provide an independent fiduciary with the power to terminate a plan.

Further, said the Court, in light of the deteriorating state of the pension plan in question, in this case the district court acted within its discretion when it provided the independent fiduciary with authority to terminate the plan. Again, the plan has a history of mismanagement and repeated attempts to misappropriate its funds. The pension plan is now almost completely dormant, as only seven of its original 309 participants remain active. In the event that the pension plan is formally terminated, ERISA requires that participants have their contributions returned, with any surplus assets allocated by the independent fiduciary to the appropriate participants.

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