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Guest Article
(From the July 14, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
Use of Plan Assets to Promote Collective Bargaining Objectives Violates ERISA
Responding to a request from the U.S. Chamber of Commerce regarding whether plan assets can be used to promote union organizing campaigns and union goals in collective bargaining agreements, the U.S. Department of Labor advised that ERISA § 404(a)(1) -- which requires fiduciaries to act solely in the interests of, and for the exclusive purpose of providing benefits to, plan participants -- would be violated by such actions. Department of Labor Advisory Opinion 2008-05A (06/27/08).
According to U.S. Chamber President and CEO, Thomas J. Donohue, unions are becoming increasingly aggressive in using plan assets "as a financial battering ram" in organizing campaigns and contract negotiations. The Department of Labor's Advisory Opinion makes clear that ERISA does not allow the interests of the plan participants to be subordinated to such objectives.
The Department believes the use, or threat of use, of pension plan assets or plan management to achieve a particular collective bargaining objective is activity that subordinates the interests of participants and beneficiaries in their retirement income to unrelated objectives. Although union representation of plan participants and benefit related provisions of collective bargaining agreements may in some sense affect a plan, the fiduciaries may not, consistent with ERISA, increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote or oppose union organizing goals or collective bargaining objectives. |
The Department goes on to advise that, in addition to constituting a fiduciary violation under ERISA § 404(a)(1), such actions may also constitute a prohibited transaction under ERISA § 406.
In addition, expenditure of plan assets to urge union representation of employees in the collective bargaining process or to promote a particular collective bargaining demand may constitute a prohibited transfer of plan assets for the benefit of a party in interest, under section 406(a)(1)(D) and potentially an act of self-dealing under section 406(b)(1). |
(A prohibited transaction, in addition to violating ERISA, may subject the party in interest engaging in the transaction (i.e., the fiduciary, employer, union, etc.) to excise taxes under Internal Revenue Code § 4975.)
This Advisory Opinion follows one issued to the U.S. Chamber of Commerce in December 2007 advising that shareholder activism by plan fiduciaries may similarly violate the fiduciary duty requirements of ERISA § 404(a)(1). (See Advisory Opinion 2007-07A, December 27, 2007.) Reportedly, that opinion was sought in connection with a shareholder activism campaign launched by a labor organization seeking to convince employers to support its health care agenda.
| The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.
If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte. |
BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above. |