Recovering delinquent employer contribution to Multiple Employer Plan

[Guest medinael]

Our client is the plan sponsor and plan administrator of a multiple employer 401k plan (not collectively bargained). In 2001 the plan was a safe harbor plan and safe harbor matches were required to be made by each participating employer pursuant to the participation agreements. There were about 20 participating employers in the plan in seven control groups. The participating employers in one control group have refused to make the 2001 safe harbor match for their employees - now over 1 year delinquent.

Any suggestions for what actions are available to pursue the delinquent contributions? Are Participating Employers fiduciaries as to their employees? Can the Plan Administrator bring a breach of fiduciary action? Should the plan sponsor just cough up the money and seek recovery from the delinquent participating employers through litigation or go straight to litigation and leave the obligation outstanding? Ugh.

[mbozek]

What does the plan document provide regarding the obligation to contribute and the obligation to recover contributions? This is a matter to discuss with counsel for the plan.

[KJohnson]

It would be an interesting case if you brought it. Unless you have something in your document that makes the "due and owing" match a plan asset, I think it would be tough to bring a fiduciary breach suit. Absent these "unmade" contributions being plan assets, the failure to make employer contribtions (as opposed to failing to remit employee contributions in the DOL sense) is generally not a fiduciary breach. You don't have the benefit of 515 of ERISA, because that only applies to multis and does not apply to multiples. You may be left with a 502(a)(3) claim to enforce the terms of the plan document, but this only provides you with equitable relief under Great West. You may be able to construct equitable relief that gets you where you want to be such as a constructive trust, but it would be an interesting case. If you brought a state law breach of contract action, you would be looking at some interesting preemption issues.

[Kirk Maldonado]

KJohnson:

Do you think that the plan sponsor and plan administrator would have standing to bring such a Section 502 claim?

[KJohnson]

I doubt the plan sponsor would have standing since it is not an enumerated party under (a)(3). I would ordinarily expect it to come from the trustee, but I think that plan administrator, as a fiduciary, would have standing under (a)(3) to enforce the terms of the Plan.

[mbozek]

See ITPE Pension Fund v Hall 334 F3d 1011, 2003 WL 21403477. Employer contributions are plan assets only if the agreement between the fund and employer specifically declares the contributions to be plan assets. In absence of specific language, company officers are not fiducaries with personal liability for payment of delinquent contributions.

[KJohnson]

Agreed, but the 502(a)(3) claim to enforce the terms of the plan (assuming it required the contribuiton) would not be contingent upon fiduciary status of the company or its officers. The relief available would be the interesting question.

[mbozek]

I think the only option is to sue the employer under either ERISA or common law contractual duty to make the required contributions. Otherwise there would be no effective remedy to enforce the requirement for making contributions under the plan. However, if the employer has no assets there can be no recovery from a corporate officer under the fiduciary requirements unless the contributions are declared to be plan assets.

[IRC401]

Doesn't the plan document have some mechanism for throwing the noncontributing employers out of the group?

Tell them that they are not longer contributing sponors, that they need to do nondiscrimintion testing, that they need to get their own plan document, and that unless they separately engage your client, they need to arrange for a new administrator.