Late Defferals service provider liability

[k man]

assuming a TPA is not a fiduciary what course of action in addition to sending letters should be taken to protect the plan and avoid liability for the TPA? case law seems to state that steps should be taken to protect the plan but it is not necessary to inform the DOL or the participants.

[Peter Gulia]

If a record-keeper is confident that it isn’t a fiduciary but nonetheless wants to do something about anticipated but unpaid contributions, it might consider making clear that it acts not to protect the plan but rather in exercising its rights concerning its service contract, or otherwise to protect itself.

See, for example, CSA 401(k) Plan v. Pension Professionals, Inc., 195 F.3d 1135, 1137–38 (9th Cir. 1999); see also Arizona Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 722 (9th Cir. 1997); Beddall v. State State Bank & Trust Co., 137 F.3d 12, 21 (1st Cir. 1998); Coleman v. Nationwide Life Insurance Co., 969 F.2d 54 (4th Cir. 1992), cert. denied, 506 U.S. 1081 (1993).

Notice that in each of these cases a defendant ultimately succeeded in getting a court to find an absence of an extra duty but paid attorneys’ fees to get to that point. Worst of all, the plaintiffs in the CSA case asserted that the record-keeper’s attempt to get the thief to pay the contributions is what made it a fiduciary. Pension Professionals, Inc.’s mistake was giving the thief a second chance and not getting rid of a dangerous customer at the earliest opportunity.

Depending on what facts one knows or doesn’t know and the potential size of the suspected theft, some record-keepers might consider one or more of the following steps:

• collect outstanding fees owed to the record-keeper;

• send each participant (if the record-keeper has an address) a notice warning that the record-keeper has no obligation to him or her;

• send the plan administrator a notice ending the service contract at the earliest time that would not be the record-keeper’s breach.

As with any evaluation of risks, one wants to consider the particular facts and circumstances.